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Investing.com -- J.P. Morgan has initiated coverage on TUI (LON:TUIT) Group with an “overweight” rating and a price target of €12 by December 2026, in a note dated Wednesday, reflecting a potential upside of approximately 70% from its current price of €7.05.
Shares of the German leisure, travel and tourism company were up 4.7% at 07:27 ET (11:27 GMT).
The brokerage’s assessment is based on the expectation of margin recovery, an improved business mix, and a structurally stronger balance sheet, all contributing to a re-rating of the stock.
The report flags that TUI’s Markets+Airlines segment, which accounts for about 85% of revenue and 20% of EBIT, is positioned for an improvement in profitability.
This is driven by the expansion of dynamic packaging and TUI’s app, alongside ongoing cost efficiencies and operational scale benefits.
Meanwhile, the Holiday Experiences division, comprising hotels, cruises, and local experiences, is projected to maintain a healthy mid- to high-single-digit percentage growth rate, reinforcing the company’s margin mix.
J.P. Morgan’s valuation approach employs a sum-of-the-parts methodology, incorporating a blended EV/EBITDA multiple of 4.8x, which remains below the company’s pre-pandemic five-year average of 5.5x.
A 20% conglomerate discount has been applied to the equity valuation, supporting the price target. The firm also anticipates that TUI’s debt position will improve further, with leverage projected to decline below 1.0x in the medium term.
Among the key catalysts for the stock’s potential upside is the resumption of dividend payments, expected in fiscal year 2026.
J.P. Morgan underscores that the company’s return of its state-backed revolving credit facility removes previous restrictions on shareholder returns, making dividends a more tangible near-term prospect. Additionally, TUI’s credit ratings have been upgraded, aligning with its targeted BB/Ba range.
Despite these positives, J.P. Morgan identifies risks that could impact the stock, including macroeconomic slowdowns in the UK and Germany—TUI’s largest source markets—competitive pressures within its airline business, and potential disruptions from geopolitical events or supply chain constraints, such as further grounding of Boeing (NYSE:BA) 737 MAX aircraft.