Can this hotel stock continue its momentum?

Last year was a turning point for the hotel industry as it finally returned to normal, pre-COVID-19 levels, after a three-year drought. InterContinental Hotel Group (NYSE:IHG) demonstrates this as it releases its 2023 review, which shows strong growth across its hotel portfolio.

InterContinental Hotels Group, commonly known as IHG, has seen its stock price rise 60% in 2023 and is already up about 17% this year to more than $107 per share. This is not only a 52-week high, but also an all-time high. Investors may be wondering if there is still buying going on after the recent surge. Let’s take a closer look.

strong 2023

IHG’s year-end review, released Tuesday, included some impressive results for the year, including a 19% increase in revenue to $4.6 billion and a 70% increase in operating profit to $1.1 billion. This is the first time the company has exceeded $1 billion in annual operating profit within its reporting segment.

IHG also performed well in key industry metrics (RevPAR, average daily rate, and occupancy) that the industry closely monitors. RevPAR rose 16% in 2023 and was 11% higher than its 2019 peak. Average daily rates are 5% higher than in 2022, up 13% from 2019, and occupancy rates are up 6.4% in 2023. Occupancy was the only metric still below 2019 levels, about 1% lower, but that much higher percentage led to higher RevPAR.

The regions with the largest increases were China and EMEA (Europe, Middle East, and Africa), with RevPAR increases of 24% and 72%, respectively. In the Americas, there was a 7% increase compared to the same period last year.

Additionally, the portfolio has grown with the opening of 275 new hotels in 2023, 27% of which are scheduled to launch in the fourth quarter with the addition of Iberostar hotels to the IHG portfolio. Overall, the total number of rooms opened in 2023 was a net gain of 3.8%. As of December 31, the chain had more than 946,000 rooms in 6,363 hotels, of which 66% were in the mid-range segment and 34% in the mid-range segment. High end and luxury segment. The midscale segment was strengthened with the launch of Garner branded hotels in the US in September 2023.

IHG’s strong performance helped improve its finances and ultimately rewarded shareholders. Net cash from operating activities increased 38% to $893 million, and adjusted free cash flow increased 45% to $819 million. This allowed IHG to return $1 billion to shareholders in 2023, with $750 million in share buybacks and $245 million in dividends.

That will likely continue in 2024, as the company announced plans to return $800 million to shareholders through share repurchases this year and pay out more than $200 million more in dividend payments. Stock buybacks generally help stock prices not only because they have the effect of buying out shareholders who want to cash out, but because stocks are generally more valuable when there are fewer shares on the market.

an optimistic outlook

IHG CEO Elie Maalouf remains optimistic about the company and the industry this year and the years ahead. In terms of industry growth, he said hotel revenues have grown faster than global GDP in 19 of the 23 years since 2000.

He also cited a study by Oxford Economics that forecasts a 4% annual room occupancy growth rate for the industry through 2033. The United States alone is targeting 2.7% growth, and China is targeting 4.2%. This should be supported by further recovery in occupancy levels for business travel, meetings and events. increased international flight capacity; Room rates may also increase due to increased demand.

“The travel industry has compelling, long-term demand drivers, and the strength of our brand portfolio and enterprise platform will continue to drive RevPAR and system volume growth. The combination of our scale and cost-based efficiencies will further expand our fee margins. IHG’s strong cash generation supports investments in our growth plans, continuing to increase our regular dividend and regularly returning excess capital through share repurchases and more,” Malouf said in the earnings call.

Buying IHG?

According to IHG’s specific projections, the company has more than 2,000 hotels in its development pipeline, 40% of which are under construction. The pipeline represents another 300,000 hotel rooms.

Additionally, we expect fee revenues to grow at high single-digit rates annually over the medium to long term, with fee margins expected to increase by an average of 100 to 150 basis points per year over that period. The company also expects adjusted EPS to grow at a compound annual rate of 12-15% over the medium to long term.

Despite this price surge, the stock is still fairly reasonably valued, with a forward price-to-earnings ratio of 24 and a five-year P/E-to-growth (PEG) ratio of 1. With momentum and prospects, backed by strong travel industry tailwinds and strong financials, IHG looks like a very solid long-term option. However, given this rally, it may be prudent to monitor the situation and look for a downside after the all-time high.