J.P. Morgan has raised InterContinental Hotels Group Ltd. (IHG) to an “overweight” from "underweight" rating, raising its price target to 10,400 pence from 8,500 pence, marking a double upgrade and signaling confidence in the company’s earnings visibility amid uncertain revenue per available room (RevPAR) trends, sending shares up over 3% on Friday.
“Earnings visibility is key in times of RevPAR uncertainty,” the brokerage said, highlighting IHG’s resilience across markets.
Shares have underperformed year to date, down roughly 15% against the MSCI Leisure Index, reflecting U.S. exposure, currency fluctuations, and softer underlying momentum across the U.S., China, and the U.K.
J.P. Morgan said, “with RevPAR expectations now rebased, we expect the narrative to turn more constructive (BBG ANR <30% OW), gradually pivoting towards its superior earnings visibility (delivering HSD-LDD % EBIT growth, in part underpinned by DD % growth in ancillaries), high FCF conversion (c.55%) allowing for c.5% of shares repurchased annually, and execution.”
IHG’s asset-light model supports high single- to low double-digit EBIT growth, with free cash flow conversion around 55%, enabling ongoing shareholder returns.
The firm’s pipeline accounts for 34% of its existing footprint, with more than 40% under construction.
J.P. Morgan noted that ancillary revenues, now roughly 14% of core revenue, “are less directly impacted by macro,” including co-brand credit card fees and loyalty point sales, which are expected to contribute materially to margins.
Signings increased 15% year-on-year in the first half of 2025, excluding the Ruby and NOVUM deals, supporting new unit growth (NUG) expected to reach 4.5% in fiscal 2026.
Conversions accounted for approximately 50% of room openings and signings, reflecting a shift from pre-pandemic levels of less than 20%. Ruby and NOVUM acquisitions added 34 and 119 hotels, respectively, with IHG planning further expansion in new geographies.
The U.S. macro environment remains subdued, with construction and transactions below pre-pandemic levels, though J.P. Morgan expects lower interest rates to support hotel developments.
Globally, IHG’s pipeline totals 338,000 rooms across 2,276 hotels, concentrated in Greater China and high-end segments, with Luxury & Lifestyle and Premium brands representing more than 40% of new additions.
Central revenue streams are also gaining importance, with credit card fees projected to rise to $120 million by 2028 from $80 million in 2025. Loyalty program enrollments increased 22% globally, now accounting for roughly 65% of all room nights booked.
The analysts said, “IHG should be able to grow revenue by MSD % before even accounting for RevPAR growth,” underscoring the defensive nature of ancillary income.
Valuation metrics place IHG on a one-year forward EV/EBITDA of 13.8 times, a price-to-earnings ratio of 19 times, and a free cash flow yield of about 5%.
J.P. Morgan highlighted that the price target “still implies a discount to MAR/HLT,” reflecting the higher unit growth of U.S. peers.
Risks include potential declines in RevPAR or NUG, slower-than-expected U.S. GDP growth, volatility in China, and geopolitical tensions, with a bear-case scenario implying roughly 10% downside.
The brokerage favors IHG and Accor over Whitbread, citing IHG’s structural earnings visibility, defensive growth model, and high-quality pipeline.
“IHG is a quality compounder benefitting from superior earnings visibility (ancillaries less cyclical, insulated from cost inflation and tariffs) and execution, delivering HSD-LDD % EBIT growth (more at the EPS level) through its asset-light model,” J.P. Morgan said, noting mid-teens EPS growth for 2025–2027, enhanced by share buybacks.
Source :
https://www.investing.com/news/stock-market-news/jp-morgan-doubles-upgrade-on-intercontinental-hotels-stock-up-3-4256990
