InterContinental Hotels Upgraded to 'Buy' by UBS on Valuation Gap

UBS has upgraded InterContinental Hotels Group (IHG) to 'Buy' from 'Neutral', citing an attractive entry point for investors based on the company's current valuation. The bank also raised its price target on the hotel operator's stock to $188 from $157.65.

Following the analyst note, shares of IHG rose 2.2% in London trading.

The Analyst Case

In a note to clients, UBS analysts led by Jarrod Castle highlighted IHG's strong long-term performance, supported by a portfolio of leading brands and an "asset-light model." The bank noted that over the past decade, IHG's earnings have compounded at approximately 9% annually, while the company has returned about $8.5 billion to shareholders.

Despite this track record, UBS argues that the shares now trade at a discount or a lower premium relative to key competitors, creating an "attractive opportunity" for investors.

Valuation and Peer Comparison

The upgrade is primarily based on a valuation argument. UBS pointed out that IHG has historically traded in line with its rival Hilton, but its shares now trade at a 3% discount. While acknowledging some discount may be warranted, the analysts believe it should narrow given IHG's growth prospects.

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Furthermore, the bank noted that IHG's valuation premium to Marriott has also narrowed. The analysts view this re-rating as "likely overdone given the outlook," especially considering IHG's stronger exposure to recovery markets like China and the Middle East.

Revised Forecasts and Outlook

Reflecting a stronger-than-expected first half, UBS has increased its financial forecasts for IHG. The bank's key estimates now include:

• 2026 Revenue Per Available Room (RevPAR) growth of 3.5%
• 2026 Net unit growth of 5.0%

As a result, UBS raised its 2026 and 2027 earnings-per-share (EPS) estimates by approximately 4%. The new $188 price target is based on 18 times the firm's 2027 estimated EV/EBITDA, a premium to the long-term average that UBS says is justified by IHG's business model, visible earnings growth, and capacity for significant shareholder returns.