While Wall Street might put them in the same bucket at casinos,
cruise ships, and airlines, InterContinental Hotels (
NYSE: IHG) has been writing their own story for much of 2020. And
for a hotel group, it has to be said they’re not doing too bad this year, all things considered.
As one of those industries that found itself on the front line when COVID hit and shut down non-essential travel, InterContinental shares took a fair bit of damage in Q1. Having put in a steady year on year grind since the 2008 crash, COVID sent them down 60% and had them trading back at 2011 prices. But they didn’t panic and instead rolled up their sleeves and bunkered down.
In the six months since, shares have rallied more than 120% and are basically back trading where they were this time last year. When compared against cruise and airline stocks who are still languishing way closer to 2020 lows, this is a serious achievement. Even revenue being down 45% year on year in August’s report hasn’t been a blocker to the stock’s recovery. Wall Street is clearly focused on the long term potential here and likes what it sees.
Fresh Upgrade
On Tuesday of this week, JPMorgan joined the bullish camp when they removed the Underweight rating that was surely weighing on shares and moved them to Neutral. In a note to clients, analyst Estelle Weingrod wrote how concerns about the future of business travel are likely overdone. She added, “simply put, we trust that the hoteliers will get back to previous profitability levels, and quicker” than many expect. As the dust from the first six months of coronavirus continues to settle, Weingrod is confident that InterContinental will be profitable again within three years.
This is solid bullish sentiment for the bulls to feed off and could be enough to entice some investors from the sidelines. InterContinental’s $2 billion war chest of liquidity is a major feather in its cap right now. Bond king PIMCO noted in August how any company that has 20-36 months of cash runway is almost guaranteed to survive until there’s a vaccine released in the next 6-12 months. Mark Kiesel, co-manager of PIMCO’s $71 billion fund said that they’re overweight on travel and tourism as this is what they see the next wave of recovery lifting up.
Bullish Momentum
That’s another vote of confidence for a sector that has fought back from the brink. It’s worth noting that t’s likely that the hotel industry, InterContinental included, will continue to be susceptible to short term volatility brought about by the ebbs and flows of COVID cases. As airline traffic numbers continue to increase for example, InterContinental and its peers are naturally going to see an uptick as well. Conversely, if cases continue to worsen and threats of large scale lockdowns return, expect InterContinental to become as unattractive as it was in Q1.
But we’ve also seen how quickly it can bounce back which is why it deserves to be on your watchlist. Investors thinking about getting involved sooner rather than later have a nice upward trend to base entries around as well as August’s high for a natural target. It might be a while yet before shares are trading at pre-COVID levels but it’s clear they want to get there and Wall Street believes they’ll be able to do it.
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