Park Hotels & Resorts Stock Price Could Reach $23: Morningstar Research
Morningstar has rated Park Hotels & Resorts Inc. (NYSE: PK) as a Buy with a fair value estimate of $23 per share, substantially higher than its current trading price of $13.49. Despite near-term disruptions from hotel renovations, analysts see strong growth potential driven by asset optimization and a recovery in business and group travel. The company’s capital allocation strategy and portfolio renovation initiatives are expected to yield significant improvements in revenue per available room (RevPAR) and EBITDA growth in the coming years.
Company Overview and Recent Performance
Business Strategy and Portfolio:
Park Hotels & Resorts, one of the largest US lodging real estate investment trusts (REITs), operates primarily in the upper-upscale hotel segment. It was spun off from Hilton Worldwide in 2017 and has since refocused its portfolio by selling lower-quality and international properties.
The company currently owns 38 hotels with over 23,000 rooms in key domestic markets, with brands like Hilton, Marriott, and Hyatt.
Recent Results:
In the latest quarter, occupancy rose by 2.5% year-over-year to 78.1%, and RevPAR grew by 3.3%, although this fell below Morningstar’s expectations of 5.6% growth. Renovation-related disruptions at two major Hawaiian properties negatively impacted EBITDA, which declined 1.9% during the quarter.
Fair Value and Stock Levels
Morningstar’s analysis places a fair value estimate of $23 per share, implying that Park Hotels is currently undervalued with a Price/Fair Value (P/FVE) ratio of 0.59. Key valuation drivers include:
EBITDA Margin Expansion: Projected to increase to over 25% through a combination of RevPAR and cost control improvements.
Dividend Yield: Park has resumed dividends post-pandemic, with a 10.38% forward yield, making it attractive for income investors.
Price Targets:
Bull Case: $30+ (with rapid RevPAR and asset value growth)
Base Case: $23 (moderate recovery and stable market conditions)
Bear Case: $11 (underperformance due to continued market headwinds)
Capital Allocation and Leadership
Morningstar assigns Park an exemplary capital allocation rating, citing sound financial management and strategic reinvestments. The company’s debt-to-EBITDA ratio is expected to stabilize at 6.2x, in line with the industry average.
CEO Thomas Baltimore’s Leadership:
Baltimore, with extensive experience in hotel REITs, has successfully executed a strategy of portfolio optimization, disposing of non-core assets and focusing on high-growth markets. His team has demonstrated expertise in improving hotel operations and maximizing shareholder value.
Growth Drivers: Renovations and Demand Recovery
Park’s ongoing renovations at its Hawaiian properties are expected to boost long-term performance, despite causing short-term EBITDA declines. Key properties, including the Hilton Hawaiian Village, are undergoing significant upgrades aimed at improving RevPAR.
Business and Group Travel:
The recovery in business travel and group bookings has gained momentum, with group revenue rising 8% year-over-year. Advance bookings for 2025 show further growth, supporting Morningstar’s outlook for above-industry revenue increases.
Competitive Positioning
Park faces competition from other hotel REITs, including Host Hotels & Resorts and Pebblebrook Hotel Trust. Here's a comparison of key metrics:
| Company | Fair Value Estimate | Current Price | Price/Fair Value | Dividend Yield |
|---|---|---|---|---|
| Park Hotels & Resorts | $23.00 | $13.49 | 0.59 | 10.38% |
| Host Hotels & Resorts | $23.00 | $16.71 | 0.72 | 4.79% |
| Pebblebrook Hotel Trust | $23.50 | $13.13 | 0.54 | 0.30% |
Risks and Uncertainties
Morningstar assigns a high uncertainty rating to Park Hotels due to several risk factors:
1. Competitive Market Conditions:
The hotel industry’s fragmented nature and price-sensitive consumers limit Park’s ability to exert pricing power.
2. Renovation Disruptions:
Short-term EBITDA growth may face setbacks as key properties undergo renovations.
3. External Risks:
Park is vulnerable to shifts in travel demand, currency fluctuations, and regulatory changes. Additionally, the growing presence of home-sharing platforms like Airbnb may erode market share in certain segments.
Analyst Insights and Investment Outlook
Morningstar analysts believe that Park Hotels is well-positioned for long-term growth, supported by improvements in RevPAR and EBITDA margins. The company’s focus on domestic high-quality assets aligns with favorable market trends, including increasing leisure travel.
Investor Recommendations:
Consider accumulating shares at or near current levels, given the significant undervaluation.
Monitor quarterly RevPAR performance and updates on renovation progress.
Diversify holdings within the REIT sector to mitigate risks tied to market conditions.
