For the same reasons that I never invest based solely on technical analysis, I consider it detriment

For the same reasons that I never invest based solely on technical analysis, I consider it detrimental to invest in a company without adequate knowledge luxury car rentals houston texas of the business, so I always include a detailed luxury car rentals houston texas Company Overview in my initial article about each company. luxury car rentals houston texas Rather than clutter every subsequent article with that same information, luxury car rentals houston texas I have posted a separate Company Overview here .
Investors can also consider reading my first article on a company, regardless of when it was written, since my theses are always for the long term and my first article about a company is typically luxury car rentals houston texas the only one that includes thorough details to support my investment thesis. All of my articles are listed here and, listed luxury car rentals houston texas chronologically, my previous IHG articles can be found here and here .
It's important to note that the InterContinental Hotels Group shares referred to in this article are American Depositary Receipts [ADRs]. ADRs are basically luxury car rentals houston texas proxy shares to allow U.S. citizens to invest in non-U.S. luxury car rentals houston texas companies without a need to deal with foreign stock exchanges or currencies. The tax implications are important when investing in non-U.S. companies since almost all countries (about 75%) tax all dividends. In fact, many nations tax dividends at rates as high as 35%, which impacts total return, since dividend stocks often have less share price appreciation. However, the U.K. does not tax ADR dividends at all, so IHG shareholders retain the full approximate 2% yield the company pays. Performance Drivers
The primary components of my investment thesis are: [1] as an independent company for only a short time before the recent global economic crisis, IHG is only recently being revalued in a more normalized economic environment, [2] with strong new leadership of the independent company, IHG has a renewed focus on hotel quality and brand identity , which has meant consistent growth in market share via an improved luxury car rentals houston texas and growing portfolio, [3] the IHG asset-light business model continues positioning the company for sustainably-high cash generation, increased profitability and expansion in growth markets , and [4] the travel and lodging industries are among the last and slowest to rebound from economic downturns, but the entire hotel industry is indeed rebounding and the industry outlook favors the largest global players, so IHG is very well positioned to capitalize on both the initial rebound and subsequent growth.
Each of those long-term factors is covered in detail in my prior IHG articles, so this article touches luxury car rentals houston texas on three short-term factors that I believe are important to consider right now: [1] some merger and acquisition (M A) speculation might have been priced into the stock, [2] while the shareholder-friendly practices of IHG are clearly positive, traders who only initiated IHG positions to capture the recent special dividend may exit at any time and temporarily impact share prices [3] the stock market as a whole seems less decisive about a direction lately and a potential market-wide correction would obviously affect all stocks.
In late May, several news outlets, including Bloomberg and Reuters , reported that IHG had rejected a $10.11 billion takeover offer from a U.S. company. As to be expected, neither IHG nor the bidding luxury car rentals houston texas company commented. Starwood (NYSE: HOT ) was often mentioned by analysts, but it was later reported that Wyndham (NYSE: WYN ) was the actual bidder. Either company could benefit from the U.K. domicile luxury car rentals houston texas of IHG via inversion . However, not only does a $10.11 billion offer seem too low (current IHG market capitalization is $9.91 billion), but there is no indication that IHG has any interest in a merger. For example, just last year, after a year-long battle , the IHG Board and management team successfully fended off the advances of famed activist investor Nelson Peltz.
To make clear that I'm not at all suggesting that the current IHG share price is the result of an M A bid, I'll point out that the offer news broke several weeks after IHG shares gapped up to a $40-41 range (from the prior $34-36 range), due to a very strong 2014 Q1 earnings report .
What I am saying is that takeover courtships can drag on for many months, or even years, so there is a reasonable likelihood that a small part of the current IHG share price may be supported by investor speculation that an M A deal will resurface. There is no real way to know, so the point is that caution may be warranted at this time, especially in combination luxury car rentals houston texas with the next two factors.
Traders using a dividend capture tactic typically sell right after dividends are paid so it may take another quarter to shake out the traders trying to predict a special dividend, but that doesn't affect the IHG story at all. In fact, any resulting sell-offs can help create opportunities for investors to continue building positions, which is how I will be using the current dip.
The recent special dividend had not yet been announced at that time, but now that it has been paid, it's still possible that the IHG share price could be briefly luxury car rentals houston texas impacted by traders engaging in the dividend-capture strategy. Most of those traders have probably exited the stock already, but some traders also vary the dividend-capture strategy to hold a stock through the next earnings report for a possible bonus from an earnings luxury car rentals houston texas rally. There is no way to know whether that is happening in numbers significant enough to affect the share price so, again, my point is that caution luxury car rentals houston texas may be warranted luxury car rentals houston texas with IHG shares in the short term.
I'm far from among those who have been predicting a market correction every day since 2009, but as I have said for about a month, for only the second time in two years, I believe a correction is becoming more likely. At the same time, I think any correction that may come will be fairly luxury car rentals houston texas brief, mild ( 10%) and still within the broader context of a secular bull market that I believe will continue luxury car rentals houston texas for years, unless it is derailed by a severe Black Swan event like a large war.
While concerns about a market-wide correction are obviously not unique to IHG, in combination with the previous two factors, I believe that caution may be warranted with IHG shares in the short term. Thus, when reading through my valuation opinions in the next section, note that the timeline for my price target is just as important as the price target itself. luxury car rentals houston texas Call Update (Upside Potential, Timeline Downside Risk)
My initial IHG price target of $36 has been exceeded and I'm raising my 9-12 month IHG price target to $46, which is 40% above the $33 price during my initial call, and 11% above the current $41.50 price. The expected luxury car rentals houston texas returns luxury car rentals houston texas do not include dividends that are expected to be paid during the 9-12 months.
As the data in the chart below indicates, luxury car rentals houston texas the last four quarters of earnings per share [EPS] from IHG were $0.27, $0.44, $0.42 and $0.39 (total $1.52). With the trailing-twelve EPS total of $1.52, and the $41.50 current share price, the trailing-twelve P/E ratio for IHG is 27.30x. With the next-year EPS projection of $1.82, which I believe is achievable; the IHG forward P/E ratio is 22.80x.
Excluding the most extreme outliers, the trailing-twelve P/E ratios luxury car rentals houston texas for all other competitors are in the 26x to 38x range, with most in the low-to-mid luxury car rentals houston texas 30s. If IHG achieves a 30x trailing-twelve P/E ratio, which is just below the midpoint of the aforementioned range, the resulting share price would be $45.60.
Also excluding the most extreme outliers, the forward P/E ratios for all other competitors are in the 18x to 31x range, with most in the low-to-mid 20s. If IHG achieves a 24x forward P/E ratio, which is just below the midpoint luxury car rentals houston texas of the aforementioned range, and the $1.82 next-year EPS estimate holds true, the resulting share price would be $43.68. If the $1.82 EPS estimate continues to trend up and reaches $1.90, as I believe it will, a 24x forward P/E ratio would result in a share price of $45.60. It's important to note that doesn't represent luxury car rentals houston texas fair value today, since my focus is the 9-12 month timeline of my price target.
As the chart above shows, the IHG earnings growth rate averaged 14.20% for the last five years, the next-year growth rate is projected at 12.30% and the average growth rate over the next five years is projected at 9.30%.
I ran multiple Discounted Cash Flow [DCF] calculations to estimate how IHG might fare in a variety of earnings scenarios over the next 9-12 months, and those calculations returned share prices in the $42-48 range.
To be clear, I am not making a short-term trading call about how IHG shares will react after the August 5 earnings report luxury car rentals houston texas . My opinions are about IHG as an investment, and I believe the company will continue to justify valuations more similar to peers of comparable size. However, I do not believe that will happen quickly or all at once. My valuation opinions are not about IHG multiples being far too low, but rather a combination of two related factors: [1] IHG has been proving that it deserves multiples more similar to peers, and the market has been gradually reaching the same conclusion, and [2] I believe earnings will continue growing at IHG, making my price target achievable luxury car rentals houston texas at P/E multiples that are actually luxury car rentals houston texas lower than the examples I offered.
I prefer luxury car rentals houston texas the 200-day simple moving average [SMA] to estimate downside risk because it is an updateable guide, rather than a single price that only applies for a short time. The Yahoo Finance link under any of the above charts always leads to an updated chart with a green line to represent the 200-day SMA.
Especially if there's a market-wide correction that's more severe than the 10% that I consider luxury car rentals houston texas it prudent to plan for at this time, IHG could drop back to its $36.50 current 200-day luxury car rentals houston texas SMA. I don't at all expect that to happen, but I only plan to consider adding to my holdings if IHG shares dip to a $36-38 range. Call Performance
I'm a buyer of IHG at $28-29, would likely add to my position at $27-28 and would definitely add at $26-27. I think it is unlikely