On Thursday, Compass Point adjusted its stance on PebbleBrook Hotel Trust (NYSE:PEB), downgrading the stock from Buy to Neutral and significantly reducing the price target to $17 from the previous $28.
The firm has recalibrated its expectations for the hotel trust's performance in the upcoming quarters, redistributing some anticipated earnings from the third quarter to the fourth while maintaining the annual adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) forecast at $348 million. This figure is slightly lower by 2.4% compared to the 2023 results.
The revision comes despite the anticipation of a year free from major renovation disruptions for PebbleBrook. Compass Point notes that it might take several years for the company to fully reap the benefits from the substantial investments it has made in its portfolio over the past years. The firm's outlook for 2025 remains unchanged, with an expected adjusted EBITDA of $366 million, indicating a robust growth of 5.5%.
In terms of market performance, PebbleBrook's shares have been trading close to their peers when evaluated based on the 2024 funds from operations (FFO) multiple. However, the stock appears more expensive when assessed with a 2024 EBITDA multiple of 13.6 times. This valuation discrepancy has contributed to the firm's decision to downgrade the stock to a Neutral rating.
The new price target reflects the firm's adjusted expectations and valuation metrics, suggesting a more cautious stance on PebbleBrook's near-term financial prospects. The company's forthcoming financial performance will be closely watched to assess whether the significant past investments will translate into the anticipated growth and when the benefits might materialize.
InvestingPro Insights
As PebbleBrook Hotel Trust (NYSE:PEB) navigates through a period of recalibrated expectations, real-time data from InvestingPro provides additional context for investors. The company's market capitalization stands at $1.86 billion, with a negative P/E ratio reflecting its recent lack of profitability. Despite the challenges, the company has maintained its dividend payments for 15 consecutive years, a testament to its commitment to shareholder returns, even as short-term obligations overshadow its liquid assets.
InvestingPro Tips suggest that management's strategy of aggressive share buybacks could be a sign of confidence in the company's long-term value. However, PebbleBrook's weak gross profit margins and the anticipation that it will not be profitable this year are areas of concern. On a more positive note, the stock is trading at a low revenue valuation multiple, which may attract investors looking for undervalued opportunities.
For investors seeking a deeper dive into PebbleBrook's financial health and future prospects, InvestingPro offers additional tips and insights. With the use of coupon code PRONEWS24, investors can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a total of 9 additional InvestingPro Tips. These tips could provide valuable guidance in making informed decisions about the stock, especially as the company approaches its next earnings date on April 23, 2024.
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