Mason Hawkins is Doubling Down on This Hotel Company
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Southeastern Asset Management, a Tennessee-based investment management firm ran by Mason Hawkins, has doubled its position in InterContinental Hotels Group (NYSE: IHG). InterContinental is a manager and franchiser of hotels and resorts, operating all over the world. The company operates such brands as InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels and Resorts, Holiday Inn Express, Staybridge Suites and Candlewood Suites.
Mason first took interest in InterContinental back in October 2011, when Southeastern initiated a new position in the hotel company. At the time, the stake equaled 11.1% and the stock was trading between $16-$18 per share. It now trades north of $25. Since Mason and Southeastern announced their initial position in October 2011, the stock has steadily risen. Along the way, Mason had trimmed his firm’s position in the company from the initial 32.2 million shares he invested, to 13.2 million by the end of the second quarter of 2012.
The most recent purchase by Southeastern raises its stake in InterContinental to 9.4%, effectively increasing the fund’s position twofold, from the 13.2 million shares it owned at the end of Q2 to 27.5 million shares it currently owns. Other notable hedge funds with small stakes in InterContinental include D.E. Shaw & Co. and SAC Capital Advisors, and you can also view all funds that own the company by clicking here.
InterContinental’s revenue and earnings expectations show strong growth prospects over the next few years. The consensus estimates are that revenues will reach $1.86 billion for 2012 and $1.96 billion for 2013, versus revenue of $1.77 billion in 2011. EPS estimates have been revised upward and are now expected to be $1.34 for 2012 and $1.51 for 2013, versus $1.27 for 2011. InterContinental’s international exposure should help insulate it against a further slowdown in the U.S. At the close of the second quarter of 2012, InterContinental was already showing promise in international markets, with an 11% increase in European segment revenues and 14% in its China segment.
The competitive environment for hotels is saturated, with InterContinental competing with the likes of Hyatt Hotels Corporation (NYSE: H), Marriott International (NYSE: MAR), Choice Hotels International (NYSE: CHH) and Wyndham Worldwide (NASDAQ: WYNN), just to name a few. On a Price-to-Earnings basis, InterContinental trades below its competitors, with a trailing P/E of 13, while Hyatt trades at a 58 P/E, Marriott at a 64 P/E, Choice at a 16 P/E, and Wyndham at a 21 P/E.
The catalyst to drive InterContinental’s stock higher will be its ability to execute its aggressive expansion plans. InterContinental wants to diffuse across Indonesia with two entirely new hotel brands, which the company then plans to take across Southeast Asia. Additionally, InterContinental has placed a particular importance on China, as it will have established ten new hotels in the country by the end of the year.
The last time Southeastern took such a commanding stake in InterContinental, the company’s stock rose by nearly 40% over the next six months. We believe that Mason Hawkins and Southeastern are very confident that InterContinental can capitalize on its expansion efforts in a cost-effective manner, just as it has managed to do since the firm made its initial investment back in October 2011.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Choice Hotels International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.