Company Reports

We think InterContinental holds one of the industry's strongest brand intangible assets—a source of its wide moat—and forecast it will expand its room share during the next decade. Renovated and newer brands focused on the attractive midscale and extended-stay segments as well as a loyalty program of 130 million members will aid this growth. Also, the company holds a strong presence in international markets, with non-Americas regions constituting 45% of total rooms in 2023. This positions the company well for the more than 1 billion middle-income class individuals expected to be added to the global population over the next decade. The company currently has a mid-single-digit percentage share of global hotel rooms and over 10% share of all industry rooms under construction. We see its total room growth averaging over 3% over the next decade, above the 1%-2% supply increase we estimate for the US industry.

Wide-moat InterContinental Hotels Group’s first-quarter sales and development update broadly tracked toward our 2024 consolidated forecast. Thus, we don’t expect much change to our $96/GBX 7,550 fair value estimate, leaving the shares appropriately valued.

We think InterContinental holds one of the industry's strongest brand intangible assets—a source of its wide moat—and forecast it will expand its room share during the next decade. Renovated and newer brands focused on the attractive midscale and extended-stay segments as well as a loyalty program of 130 million members will aid this growth. Also, the company holds a strong presence in international markets, with non-Americas regions constituting 45% of total rooms in 2023. This positions the company well for the more than 1 billion middle-income class individuals expected to be added to the global population over the next decade. The company currently has a mid-single-digit percentage share of global hotel rooms and over 10% share of all industry rooms under construction. We see its total room growth averaging over 3% over the next decade, above the 1%-2% supply increase we estimate for the U.S. industry.

We believe the 8% move higher in InterContinental's shares during Feb. 20 trading was due to a stronger profit outlook and strategic priority update that supports an enduring brand intangible asset, source of its wide moat rating. We plan to lift our $84 and GBX 6,600 fair value estimates for the U.S.- and U.K.-listed shares, respectively, by a high-single-digit percentage for higher profit expectations. We see shares as slightly overvalued.

We have upgraded Marriott, Hilton, and InterContinental’s moats to wide from narrow due to lasting brand edges for each. As a result of longer periods of economic profit in our discounted cash flow models, our fair value estimates increase to $217 from $190 for Marriott, $177 from $159 Hilton, and $84/GBX 6,600 from $74/GBX 6,100 for InterContinental.

We think InterContinental holds one of the industry's strongest brand intangible assets—a source of its wide moat—and forecast it will expand its room share during the next decade. Renovated and newer brands focused on the attractive midscale and extended-stay segments as well as a loyalty program of 115 million members will drive this growth. The company currently has a mid-single-digit percentage share of global hotel rooms and about a 10% share of all industry rooms under construction. We see its total room growth averaging near 4% over the next decade, above the 1%-2% supply increase we estimate for the U.S. industry.

We think InterContinental will retain its brand intangible asset (a source of its narrow moat rating) and expand room share in the hotel industry in the next decade. Renovated and newer brands focused on an attractive next-generation traveler position as well as a loyalty program of 115 million members as of June 30, 2023, will drive this growth. The company currently has a mid-single-digit percentage share of global hotel rooms and about a 10% share of all industry pipeline rooms. We see its total room growth averaging near 4% over the next decade, above the 1%-2% supply increase we estimate for the U.S. industry.

We plan to increase our $73 fair value estimate for InterContinental Hotels Group by around $1 per share as we lift our 2023 forecast for revenue per available room to around 16% from 13% to account for stronger second-half sales. But while we have been steadfast on travel demand resiliency since the summer of 2020, we expect InterContinental's revPAR growth to decelerate to about 2% in 2024, driven by mounting headwinds of lasting inflation and depleted consumer savings. With the shares trading near our planned upward revision, we believe investors can wait for a more attractive entry point.

We think InterContinental will retain its brand intangible asset (a source of its narrow moat rating) and expand room share in the hotel industry in the next decade. Renovated and newer brands focused on an attractive next-generation traveler position as well as a loyalty program of 115 million members as of June 30, 2023, will drive this growth. The company currently has a mid-single-digit percentage share of global hotel rooms and about a 10% share of all industry pipeline rooms. We see its total room growth averaging near 4% over the next decade, above the 1%-2% supply increase we estimate for the U.S. industry.

Our InterContinental fair value estimate is $73 per share. Narrow-moat InterContinental's second-quarter sales update points to continued resiliency of travel demand, as leisure travel endures and group, business, and international trips recover. Total revenue per available room, or revPAR, grew 17%, representing 110% of 2019’s level. China revPAR jumped 110% and was nearly back to prepandemic marks versus 91% last quarter. Americas revPAR was 112% of 2019’s level (with the U.S. at 111%), up from 111% last quarter (110%). Specifically, U.S. leisure revenue was 124% of 2019’s level, with business travel remaining slightly above prepandemic marks and group at 86%. Encouragingly, bookings for group have exceeded 2019’s level for the last six months and as of the end of the second quarter booked group revenue was 36% ahead of prepandemic amounts. Further, InterContinental noted it is not seeing any signs of demand deterioration, including no letup in leisure travel room rates. We model for the company’s 2023 revPAR to increase by a high-single-digit percentage. Meanwhile, first-half adjusted EBITDA margin was 23%, flat from a year ago, and tracking a bit ahead of our 22.3% forecast.

We think InterContinental will retain its brand intangible asset (a source of its narrow moat rating) and expand room share in the hotel industry in the next decade. Renovated and newer brands focused on an attractive next-generation traveler position as well as a loyalty program of 119 million members as of March 31, 2023, will drive this growth. The company currently has a mid-single-digit percentage share of global hotel rooms and about a 10% share of all industry pipeline rooms. We see its total room growth averaging 3%-4% over the next decade, above the 1%-2% supply increase we estimate for the U.S. industry.

We think InterContinental will retain its brand intangible asset (a source of its narrow moat rating) and expand room share in the hotel industry in the next decade. Renovated and newer brands focused on an attractive next-generation traveler position as well as a loyalty program of 119 million members as of March 31, 2023, will drive this growth. The company currently has a mid-single-digit percentage share of global hotel rooms and about a 10% share of all industry pipeline rooms. We see its total room growth averaging 3%-4% over the next decade, above the 1.8% supply increase we estimate for the U.S. industry.

Narrow-moat InterContinental's first-quarter sales update points to continued resiliency of travel demand, echoing results from the peer group in recent days. Leisure demand is enduring, with room revenue up 30% in the first quarter and at 125% of 2019's level. But the recovery is now being led by business and group, which saw sales growth of more than 30%, with the former back to 2019's level and the latter at 88% of prepandemic marks. Geographically, Greater China is seeing a strong rebound in domestic travel, resulting in its revenue per available room, or revPAR, jumping 75%, representing 91% of 2019's level, a strong lift from the roughly 60% mark in the fourth quarter. Meanwhile, IH's largest market, the United States, posted revPAR at 110% of 2019's level, in line with the fourth quarter. IH is not seeing any signs of demand weakening, and we think China will continue to recover in 2023, as flight capacity gradually returns. As a result, we don't plan to materially change our 2023 6% revPAR growth forecast or our $71 per share fair value estimate.

We expect InterContinental to retain its brand intangible asset (a source of its narrow moat rating) and expand room share in the hotel industry in the next decade. Renovated and newer brands focused on an attractive next-generation traveler position as well as its industry-leading loyalty program will drive this growth. The company currently has a mid-single-digit percentage share of global hotel rooms and about a 10% share of all industry pipeline rooms. We see its total room growth averaging 3%-4% over the next decade, above the 1.8% supply increase we estimate for the U.S. industry.

We don’t plan to materially change InterContinental’s $71 fair value estimate, as the company posted 2022 revenue and EBITDA growth of 34% and 42%, respectively, near our 33% and 44% estimates. We see shares as appropriately valued. For the full year, revenue per available room, or revPAR, was 97% of 2019’s level versus our 101% estimate, driven by average daily rate of 108% of prepandemic marks. As with peers, 2022 revPAR was strongest in the Americas and Europe/Middle East/Asia/Africa, which posted 103% and 108% of 2019’s level, respectively, well ahead of Greater China’s 62%, as travel restrictions hindered demand in that region. On a consolidated basis, fourth-quarter revPAR reached 104% of 2019’s level, improving throughout the quarter, with October at 102%, November 103%, and December 107%. The firm noted that demand has remained resilient into 2023, and we expect its revPAR to lift again in 2023, aided by the human-ingrained desire to travel, improving group and business demand, shift to service consumption, remote work flexibility, and the removal of China’s COVID-19 policy on Jan. 8, 2023.

We expect InterContinental to retain its brand intangible asset (a source of its narrow moat rating) and expand room share in the hotel industry in the next decade. Renovated and newer brands focused on an attractive next-generation traveler position as well as its industry-leading loyalty program will drive this growth. The company currently has a mid-single-digit percentage share of global hotel rooms and about a 10% share of all industry pipeline rooms. We see its total room growth averaging 3%-4% over the next decade, above the 1.8% supply increase we estimate for the U.S. industry.

We acknowledge the uncertain economic terrain but think InterContinental's demand can navigate higher in 2023, even should a mild recession occur, stoked by the ingrained desire to travel, remote work flexibility, and service consumption wallet share. We believe the market is discounting shares of travel operators like IC, which trades at a 30% discount to our $71 fair value estimate.

Despite enduring travel demand into the fall of 2022 and our view that it can continue into 2023, investor concerns around future trips and credit availability have grounded share price performance across the industry. As a result, we see meaningful opportunities to book investment stays in Sabre, Accor, Booking Holdings, and Norwegian, which trade at 64%, 42%, 44%, and 54% discounts to our $15, EUR 37.50, $2,900, and $28 fair value estimates, respectively.

We expect InterContinental to retain its brand intangible asset (a source of its narrow moat rating) and expand room share in the hotel industry in the next decade. Renovated and newer brands focused on an attractive next-generation traveler position as well as its industry-leading loyalty program will drive this growth. The company currently has a mid-single-digit percentage share of global hotel rooms and 11% share of all industry pipeline rooms. We see its total room growth averaging 3%-4% over the next decade, above the 1.8% supply increase we estimate for the U.S. industry.

We expect InterContinental to retain its brand intangible asset (a source of its narrow moat rating) and expand room share in the hotel industry in the next decade. Renovated and newer brands focused on an attractive next-generation traveler position as well as its industry-leading loyalty program will drive this growth. The company currently has a mid-single-digit percentage share of global hotel rooms and 11% share of all industry pipeline rooms. We see its total room growth averaging 3%-4% over the next decade, above the 1.8% supply increase we estimate for the U.S. industry.