On Thursday, Benchmark analyst adjusted the price target for shares of H World Group Ltd. (NASDAQ: HTHT) to $53 from the previous $64, while maintaining a Buy rating. The revision follows the company's second-quarter 2024 results, which were solid but accompanied by third-quarter guidance that fell short of expectations due to increased year-over-year revenue per available room (RevPAR) pressure.
The analyst noted that the market might be on high alert after the industry experienced a more than 10% year-over-year decline in July according to STR data, combined with subdued macroeconomic figures. Despite the RevPAR pressure, which was anticipated due to a high comparison from the previous year, the recent macroeconomic readings have been disappointing, leading to reduced visibility for future quarters.
In response to these factors, the analyst has moderately decreased the fiscal year 2024 and 2025 estimates to account for a more conservative outlook, consequently lowering the price target to $53. However, the analyst emphasized the company's strong fundamental positioning, which is evident in its accelerated network expansion guidance and above-industry RevPAR trends.
The company's commitment to shareholder returns was also highlighted, indicating confidence in sustained free cash flow growth. Despite the current cyclical macroeconomic challenges, H World Group's strategic efforts appear to be strengthening its market position.
In other recent news, H World Group, formerly known as Huazhu Group (NASDAQ:HTHT), announced a significant milestone during their second quarter earnings call, with the opening of their 10,000th hotel in China. The company reported robust growth strategies, including a focus on lower-tier cities, which has provided substantial growth opportunities.
Despite a slight 2% year-over-year decline in Legacy-Huazhu's Revenue per Available Room (RevPAR), the company showed resilience with an increase in room nights sold and a 15% year-over-year increase in hotel turnover.
The group also reported an 11% increase in total revenue, signaling a positive financial performance. Expansion efforts are continuing, with 567 new hotels opened and 101 closed during the quarter. Looking forward, H World Group aims to reach 20,000 hotels in 2,000 cities as part of their growth strategy and expects a revenue growth between 2% to 5% in the third quarter of 2024.
The company also plans to open more than 2,200 hotels this year, with a focus on quality over scale. Despite a slight decline in RevPAR, the company's management expressed confidence in long-term RevPAR growth, citing a positive correlation with GDP growth and inflation. These are just a few of the recent developments for H World Group, as they continue to expand and grow financially in a challenging macroeconomic environment.
InvestingPro Insights
Recent data from InvestingPro highlights several key metrics and insights for H World Group Ltd. (NASDAQ: HTHT) that investors may find valuable in light of the recent price target adjustment by Benchmark analysts. The company boasts a strong Piotroski Score of 9, indicating robust financial health.
Moreover, management's aggressive share buyback strategy and a high shareholder yield underscore a commitment to delivering value to investors. These InvestingPro Tips align with the analyst's view of the company's fundamental strength and confidence in its financial strategies.
From a financial standpoint, H World Group Ltd. has a market capitalization of $8.94 billion and a Price/Earnings (P/E) ratio of 17.63, which is adjusted to 17.11 for the last twelve months as of Q2 2024. The company has also experienced significant revenue growth of 30.82% over the same period, with a gross profit margin of 35.84%. These metrics, along with a robust operating income margin of 22.51%, paint a picture of a company with solid profitability and efficient operations.
Despite trading near its 52-week low and experiencing a notable price drop over the last three months, analysts predict profitability for the current year, and the company has been profitable over the last twelve months. For investors looking for more detailed analysis and additional InvestingPro Tips, there are 10 more listed on the InvestingPro platform for H World Group Ltd.
The InvestingPro Fair Value estimate of $39.07 suggests that the stock may be undervalued, providing a potential opportunity for investors. With the next earnings date scheduled for November 21, 2024, market participants will be keenly observing how the company's strategic efforts translate into financial performance in the coming quarters.
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