InterContinental Hotels Group: Sell Rating Amid Overvaluation and Competitive Growth Concerns

In a report released today, Richard Clarke from Bernstein maintained a Sell rating on InterContinental Hotels (IHG – Research Report), with a price target of p8,570.00.

Richard Clarke has given his Sell rating due to a combination of factors surrounding InterContinental Hotels’ recent financial moves. Despite the positive outlook stemming from the new credit card deal with JP Morgan Chase, which is expected to significantly increase credit card fees and cash flow in the medium term, Clarke expresses concerns regarding IHG’s valuation. The company is currently trading at a higher valuation compared to its peers, such as Marriott, which is anticipated to achieve faster growth in several key performance areas.
Clarke acknowledges that the deal provides an immediate financial boost, including a substantial upfront cash inflow. However, he notes that the market has likely already factored in some of this upside, potentially limiting the impact on future earnings growth. Additionally, while the agreement enhances IHG’s financial position, it still lags behind larger competitors in terms of overall deal size and projected growth, contributing to the Sell rating.

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InterContinental Hotels (IHG) Company Description:

InterContinental Hotels Group operates 890,000 rooms across 18 brands addressing the midscale through luxury segments. Holiday Inn and Holiday Inn Express constitute the largest brand, while Hotel Indigo, Even, Hualuxe, Kimpton, and Voco are newer lifestyle brands experiencing strong demand. The company launched a midscale brand, Avid, in summer 2017 and closed on a 51% stake in Regent Hotels in July 2018, while acquiring Six Sense in February 2019. Managed and franchised represent 99% of total rooms. As of Dec. 31, 2019, the Americas represents 59.4% of total rooms, with Greater China accounting for 15.3%; Europe, Asia, the Middle East, and Africa make up the remaining 25.3%.