Intercontinental Hotels Group target raised to $48 at MKM Partners
MKM Partners raises their IHG tgt to $48 from $45 noting co reported adj. EBIT ~4% ahead of consensus and EPS ahead of expectations driven by RevPAR acceleration in 2Q from 1Q and cost phasing to 2H. Firm believes this quarter highlights why they favor co's high-quality, less cyclical fee business: (1) Nearly 90% of fee income is based on hotel revs and 95% of operating profit is from its recurring fee business and (2) its transition to asset-light has structurally higher ROIC (deserves a higher multiple, in their view) that they calculated has increased from 10% in 2003 to 47% in 1H16. Firm believes IHG is a good candidate to participate in further industry consolidation.