Canaccord Analysts Think RLJ Lodging Is Too Exposed To Underperforming Markets

Although RLJ Lodging Trust RLJ shares have appreciated 10 percent over the past month, Canaccord Genuity’s Ryan Meliker believes the company’s high exposure to underperforming markets could lead the stock to underperform in the coming quarters. Meliker downgraded the rating on the company from Buy to Hold, with a price target of $25.

Speculations Regarding Sale

The analyst remains positive on the lodging sector and believes “RevPAR growth across the industry will moderately reaccelerate this summer, driving sentiment to improve and multiples to expand.”

However, following the departure of its CEO three months ago, RLJ Lodgings had been trading at a more than 20 percent discount to NAV, however the discount has now narrowed to about 12 percent.

There had been speculations regarding the Board potentially considering a sale of the company, although Meliker mentioned that while a transaction was still possible, it was unlikely to occur anytime soon.

Underperformance Could Be Limited

“As we expect buying pressure to lift the broader lodging sector, we feel RLJ could be left somewhat behind as investors waiting for a corporate transaction look to exit,” the analyst said.

Meliker also pointed out that while RLJ Lodgings had high exposure to underperforming markets and was likely to underperform in the medium term, the company also had exposure to outperforming markets, which would limit both the underperformance and outperformance in terms of RevPAR.

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