Barclays Initiates Hilton Spin-Off Park Hotels At Overweight

Barclays started coverage of Park Hotels & Resorts Inc PK with an Overweight rating and $30 price target, highlighting its cash flow and margin expansion opportunities.

“Park is a high cash flow generating lodging REIT with a meaningful margin expansion story over the next several quarters and with additional growth drivers (acquisitions, ROI projects) over the medium term,” analyst Anthony Powell wrote in a note.

Powell expects Park, which was spun-off from Hilton, to identify margin expansion opportunities this year and could potentially announce an acquisition by late 2017 or early 2018. The analyst estimates margin expansion opportunity could drive $3 in upside in shares if Park’s EBITDA margins reach its peers at 31 percent.

Park trades at a discount to its lodging REIT peers, including Sunstone Hotel Investors Inc SHO and DiamondRock Hospitality Company DRH, on many metrics, with an estimated dividend yield of 6.9 percent that exceeds all 18 lodging REITs.  

Powell estimates dividend (a potential catalyst for the stock) of $1.88 for 2017, representing a dividend yield of 6.9 percent. This compares with the current lodging REIT dividend yield average of 5.2 percent.

“Park's moderate leverage and low cost of debt drives one of the highest fixed charge coverage ratios in our REIT coverage universe, allowing for high dividend payments,” Powell added.

At last check, shares of Park Hotels were up 0.88 percent to $27.58. The $30 price target represents potential upside of about 9 percent.