Goldman Sachs Boosts InterContinental, Cuts Whitbread Rating

2 min read | September 18, 2024 11:16 AM EDT | By Team Kalkine Media

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Goldman Sachs Boosts InterContinental, Cuts Whitbread Rating — Image source: shutterstock

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On Wednesday, Goldman Sachs revised its ratings for two prominent hotel groups, upgrading InterContinental Hotels Group (LSE:IHG) to ‘buy’ from ‘neutral,’ while downgrading Whitbread, the owner of Premier Inn, to ‘neutral’ from ‘buy.’ This change is part of the bank’s broader reassessment of European-listed hotel companies.

Goldman Sachs justified its upgrade of IHG by emphasizing several key factors. The bank pointed to IHG’s strong long-term earnings per share growth prospects, the company’s enhanced enterprise platform, and the potential for additional revenue streams. According to Goldman Sachs, these elements justify a narrower valuation discount for IHG when compared to its major U.S. peers. The bank noted that IHG’s recent stock de-rating creates an attractive entry point for investors. IHG’s high-quality, asset-light hotel franchise platform is expected to deliver an impressive earnings per share compound annual growth rate (CAGR) of over 15% from 2023 to 2028. Additionally, the company is projected to provide a 7% annual shareholder return and achieve one of the highest returns on invested capital in the leisure sector, estimated at approximately 46% in 2025.

In contrast, Goldman Sachs’ downgrade of Whitbread (LSE:WTB) is based on concerns regarding its short-term financial outlook. While the bank acknowledged that Whitbread has a sound strategy and a capable management team, it also noted that its profit before tax forecasts are about 2% lower than the consensus estimates for fiscal years 2025 and 2026. Moreover, Goldman Sachs highlighted that soft revenue per available room trends in the UK hotel market could weigh on Whitbread’s near-term performance.

These rating adjustments reflect Goldman Sachs’ updated view of the hotel industry. The positive outlook for IHG is attributed to its strong growth potential and financial performance metrics, making it a more attractive option in the current market. On the other hand, Whitbread faces potential challenges that could impact its short-term financial results, leading to a more cautious stance from the bank.

Overall, Goldman Sachs’ revised ratings underscore a differentiated perspective on the prospects of these two hotel giants, with IHG seen as a promising investment opportunity and Whitbread facing some near-term hurdles.

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