Goldman Sachs sees EPS growth for InterContinental, upgrades shares to Buy

On Wednesday, InterContinental Hotels Group (IHG:LN) (NYSE: IHG) received an upgrade from Goldman Sachs, moving from a 'Neutral' to a 'Buy' rating. The firm also increased the price target for the hotel company's shares to GBP93.50, up from the previous target of GBP82.50.

The upgrade comes as the analyst recognized InterContinental's potential for enhanced long-term earnings per share (EPS) growth, an improved enterprise platform, and additional revenue opportunities. The assessment suggests that the company's valuation discount compared to its U.S. counterparts should be narrower, given these positive factors.

InterContinental's shares have seen a devaluation relative to its U.S. peers over the last six months. Despite this, the company has been closing the gap on forward EPS growth. The current valuation gap is approximately 17-18% based on price-to-earnings (P/E) ratio, which is slightly above the average before the COVID-19 pandemic. This situation is seen as an opportunity to invest in what Goldman Sachs views as a high-quality, asset-light hotel franchising platform.

The analyst's outlook for InterContinental is optimistic, projecting a 15.1% compound annual growth rate (CAGR) in EPS from 2023 to 2028. Additionally, the company is expected to provide a 7% annual shareholder return through dividends and buybacks. InterContinental is also anticipated to achieve one of the highest returns on invested capital (ROIC), with an estimate of approximately 46% by 2025.

Goldman Sachs' positive stance on InterContinental Hotels Group reflects the firm's confidence in the company's future financial performance and growth prospects in the hospitality industry.

In other recent news, InterContinental Hotels Group (IHG) has declared an interim dividend for 2024 at a rate of 40.8 pence per ordinary share, a decision reflecting the company's financial performance and commitment to delivering shareholder value.

This news follows a recent earnings call where IHG expressed confidence in its growth trajectory despite mixed market signals. The company reported positive revenue per available room (RevPAR) growth and optimism about long-term prospects in key markets such as China.

IHG is on track with a net unit growth of 4.2%, including the NOVUM deal, and plans to open over 7,000 rooms this year. Despite a decrease in incentive management fees in China, the company is seeing strong growth in the Asia Pacific and EMEAA regions. Furthermore, IHG is making progress with its credit card, with further details to be provided later.

These are among the recent developments for the company, demonstrating its steady growth and commitment to shareholders.

InvestingPro Insights

Following the upgrade by Goldman Sachs, current InvestingPro data provides additional context to InterContinental Hotels Group's financial landscape. The company boasts a market capitalization of $16.45 billion, with a P/E ratio standing at 26.67. Despite a slight decline in revenue growth over the last twelve months, with a -1.75% change, the company has maintained a solid gross profit margin of 49.84%. Additionally, InterContinental has demonstrated resilience with a return on assets of 14.62%.

InvestingPro Tips highlight that InterContinental has increased its dividend for the past three years, signaling confidence in its financial health and commitment to returning value to shareholders. However, the company is trading at a high P/E ratio relative to near-term earnings growth, which is a factor for investors to consider when evaluating the stock. With a moderate level of debt and a prediction of profitability for the year, the stock could be appealing to investors looking for stability in the volatile market.

For those seeking more comprehensive analysis, InvestingPro offers additional tips on InterContinental Hotels Group, available at https://www.investing.com/pro/IHG. These insights could prove invaluable for investors aiming to make informed decisions about their portfolio.

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