On Monday, Truist Securities revised its outlook on RLJ Lodging Trust (NYSE:RLJ), a real estate investment trust focused on hotels. The firm's analyst has reduced the price target for RLJ Lodging Trust to $11.00 from the previous target of $14.00. Despite the downward adjustment, Truist Securities continues to recommend the stock as a Buy.
The decision to lower the price target is attributed to anticipated hotel-level cost pressures that could affect RLJ's performance into 2025. The analyst noted that while urban hotels in the U.S. are still showing relative outperformance, which supports their investment thesis, a significant decrease in RLJ's 2024 Revenue per Available Room (RevPAR) guidance is likely to influence investor sentiment negatively. The updated RevPAR forecast now ranges between +1.0-2.5%, a drop from the earlier projection of +2.5-5.5%.
Despite the tempered expectations, Truist Securities believes there is still sufficient valuation upside to sustain a Buy rating on RLJ Lodging Trust. This optimism is partly due to the stock's current low price, which is considered undemanding when trading at approximately 10 times its projected 2025 Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). Additionally, the analyst anticipates that the transition to the 2026 valuation could add roughly $1 to RLJ's stock value.
The revised price target and sustained Buy rating reflect a cautious yet optimistic view of RLJ Lodging Trust's future financial performance. The firm acknowledges the challenges ahead but also identifies potential for growth and recovery in the stock's valuation.
In other recent news, RLJ Lodging Trust has reported a 3.4% total revenue growth and a 2.6% increase in RevPAR for the second quarter of 2024. The company has also announced an agreement to potentially sell up to $150 million of its common shares, a move that is part of a broader strategy to raise capital flexibly.
On the analysts' front, Wells Fargo has downgraded RLJ Lodging Trust stock to Underweight from Equal Weight, citing concerns about the company's leisure growth prospects and significant guidance cut in the second quarter.
Meanwhile, Baird has reduced the stock price target for RLJ Lodging Trust to $11.00 from the previous $12.00, maintaining an Outperform rating. Other recent developments include the acquisition of Hotel Teatro in Denver and a revised full-year guidance that includes hotel EBITDA between $382.5 million and $402.5 million and adjusted FFO per diluted share between $1.45 and $1.58.
InvestingPro Insights
Recent data from InvestingPro adds depth to Truist Securities' analysis of RLJ Lodging Trust. The company's market capitalization stands at $1.39 billion, with a price-to-earnings ratio of 34.2, reflecting the current challenges in the hotel industry. Despite these headwinds, RLJ has maintained dividend payments for 14 consecutive years, with a current dividend yield of 6.64%, which may appeal to income-focused investors.
InvestingPro Tips highlight that RLJ is trading at a low EBITDA valuation multiple, aligning with Truist's observation of the stock's undemanding price. This could suggest potential upside, supporting the Buy rating. Additionally, RLJ's liquid assets exceed short-term obligations, indicating financial stability amidst industry pressures.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for RLJ Lodging Trust, providing a deeper understanding of the company's financial position and market dynamics.
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