On Monday, BMO Capital Markets began coverage of Apple Hospitality REIT (NYSE:APLE), traded on the New York Stock Exchange under the ticker NYSE:APLE, with a positive outlook. The firm assigned an Outperform rating to the stock accompanied by an $18.00 price target.
Currently trading at $16.05, InvestingPro analysis suggests the stock is slightly undervalued. The initiation reflects the analyst's confidence in the company's potential for growth and financial performance.
Apple (NASDAQ:AAPL) Hospitality REIT, recognized as the largest pure-play select-service lodging Real Estate Investment Trust (REIT), is noted for its high-quality and diversified portfolio. With a market capitalization of $3.85 billion and revenue growth of 6.04% in the last twelve months, the company has shown solid performance.
The analyst's optimism is grounded in the belief that Apple Hospitality offers defensive investment characteristics while also standing to gain from possible improvements in Revenue per Available Room (RevPAR), which is a standard performance metric in the hotel industry.
InvestingPro has identified several bullish indicators, including low valuation multiples and strong recent performance. Subscribers can access 6 additional ProTips and comprehensive analysis.
The analyst highlighted the company's leading margins and a strong balance sheet, which provides financial flexibility. Furthermore, the attractive dividend yield of 6% was emphasized as a compelling feature for investors. These factors contribute to the analyst's positive stance on Apple Hospitality REIT.
With the company trading at approximately 11 times its projected 2025 Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), the analyst suggests that there is potential for an increase in the stock's value. The $18.00 price target set by BMO Capital Markets indicates an anticipated total return of 18%, signaling room for upside in the stock's future performance.
In other recent news, Apple Hospitality REIT reported stable third-quarter earnings for 2024, marked by a modest rise in comparable hotels Revenue per Available Room (RevPAR) and continued monthly cash distributions to shareholders. The company also saw a 1% year-over-year increase in comparable hotels RevPAR, primarily driven by improved rates. Adjusted EBITDAre and modified funds from operations (MFFO) also experienced growth, with increases of 6% and 3% respectively.
In terms of asset management, three hotels were sold for approximately $41 million, with contracts in place for four more totaling about $31 million. The company also plans to invest between $75-$85 million in capital expenditures in 2024. Apple Hospitality maintains a monthly cash distribution of $0.96 per share, yielding around 6.5%.
Looking ahead, Apple Hospitality refined its 2024 outlook, projecting net income between $204 million and $221 million. The company anticipates a change in Comparable Hotels RevPAR between 0.75% and 2%. Despite challenges in the market, such as increased hotel expenses and a volatile transaction marketplace, the company remains optimistic about its operating fundamentals and strategies for future growth.
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