On Monday, B.Riley adjusted its stance on Xenia Hotels & Resorts (NYSE:XHR), shifting from a Buy to a Neutral rating while increasing the price target to for the shares to $17 from the previous $16.
The revision follows a significant rally in the company's stock price, which has seen an 18.6% rise over the past month and a 34.7% increase over the past five months. This performance stands in contrast to the S&P 500's gains of 3.9% and 19.8%, respectively, during the same periods.
The analyst cited the stock's recovery to a level that closely approximates fair value as the primary reason for the downgrade. Xenia's recent share price surge has been attributed to a mix of aggressive share buybacks, executed at attractive prices during the fourth quarter of 2023, and a decrease in the number of outstanding shares. Other factors include easing interest rates and a steady, albeit slowing, growth in lodging room demand.
Lodging Real Estate Investment Trusts (REITs) are currently trading at approximately 11.5 times the estimated EBITDA for 2024, a valuation that aligns with B.Riley's target multiple for Xenia. The new price target of $17 is based on the firm's latest EBITDA estimate for the second quarter of 2025. Despite the downgrade, Xenia's prospects are considered favorable, particularly after the completion of the significant renovation and rebranding of the Hyatt Regency Scottsdale, which is expected to enhance the overall portfolio's performance.
The analyst noted that business and group demand is on an upswing in the post-pandemic world, while leisure demand has started to level off after a strong run from the second quarter of 2021 to the first quarter of 2023. Xenia's management has been proactive in capital deployment, repurchasing shares and debt over the past year. The analyst suggested that this trend might slow down as the stock valuation approaches a fuller level, and indicated that a potential pullback in the share price could present a more attractive entry point for investors.
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