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Bear of the Day: IHG Hotels (IHG)

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IHG Hotels & Resorts (IHG - Free Report) is looking forward to the recovery in travel in 2021. This Zacks Rank #5 (Strong Sell) is expected to see a triple digit earnings rebound this year.

IHG Hotels & Resorts operates 16 hotel brands and one of the world's largest hotel loyalty programs. Headquartered in Great Britain, it has nearly 6,000 hotels in 100 countries including brands such as Six Senses Hotels Resorts Spas, Kimpton Hotels, Hotel Indigo and Holiday Inn Hotels & Resorts.  

It continues to expand, even during the global pandemic, and looks to open another 1,800 hotels over the next 5 years.

Why is it a Strong Sell?

If travel is gaining momentum in 2021, and earnings are expected to rebound in both 2021 and 2022, why is IHG a Strong Sell?

The pandemic is still hitting the company's business in several markets.

The first quarter was led by the Americas and Greater China, but China's RevPAR was down 37.7% compared with 2019.

China occupancy was 40% in the quarter, which was below the 57% rate of both Q3 and Q4 of 2020 due to temporary COVID restrictions put on in January and February.

By March, occupancy was rebounding and the demand returned towards second half of 2020 levels.

The result was that the analysts were a little too optimistic about earnings growth for 2021.

Analysts Cut 2021 and 2022 Earnings Estimates

2 estimates were cut for 2021 in the last 2 months, pushing the Zacks Consensus Estimate down to $0.99 from $1.07.

That's still earnings growth of 219% as IHG Hotels only made $0.31 last year.

Similarly, 2 estimates were also cut for 2022 in the last 2 months as well. That has pushed the Zacks Consensus down to $2.37 from $2.59.

That's another 139% earnings growth.

Is the Hotel Stock Rally Over?

The hotel stocks rallied big off their 2020 lows once the Pfizer vaccine started rolling out.

But in 2021, IHG's shares are up just 9% year-to-date. That's under performing the S&P 500, which has gained 11.9% this year.

Zacks Investment ResearchImage Source: Zacks Investment Research

And because earnings are still under their pre-pandemic highs, it's trading with a forward P/E of 72.

Shares are not cheap.

If you're interested in the hotel stocks, you might want to wait to get them cheaper and with a better Zacks Rank.

No hotel company is a Zacks Rank #1 (Strong Buy) or #2 (Buy) stock.

However, some of IHG Hotel's competitors are Zacks Rank #3 (Hold) stocks, including Hyatt Hotels H, Hilton Worldwide (HLT - Free Report) and Marriott International (MAR - Free Report) .

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In-Depth Zacks Research for the Tickers Above

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Marriott International, Inc. (MAR) - free report >>

Intercontinental Hotels Group (IHG) - free report >>

Hilton Worldwide Holdings Inc. (HLT) - free report >>