IHG

We rate INTERCONTINENTAL HOTELS GROUP PLC /NEW/ (IHG) as a Buy with a composite score of 67.2/100 at a current price of $141.35. The stock scores above average across the majority of our six quantitative factors and ranks #188 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in stability (81th percentile) and value (81th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (49/100), Low uncertainty, and Poor capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

INTERCONTINENTAL HOTELS GROUP PLC /NEW/ holds a top-quartile position (#9 of 50) within the Retail Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 67.2/100 places it at rank #188 in our full 7,333-stock universe. With a $21.5B market capitalization, INTERCONTINENTAL HOTELS GROUP PLC /NEW/ operates at meaningful scale within the Retail Trade sector, providing competitive advantages in distribution, procurement, and customer reach.

The outlook is moderately positive, with revenue expanding at 7% and favorable momentum (67th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 59% (+22.4pp vs sector) narrow to operating margins of 41% (+36.8pp vs sector) and net margins of 27.4%, yielding a gross-to-net conversion rate of 47%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $141.35, INTERCONTINENTAL HOTELS GROUP PLC /NEW/ appears undervalued relative to its fundamentals. Our value factor score of 81/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at EV/EBITDA of 6.1x (discounted to peers), P/S of 2.4x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a Low uncertainty rating to INTERCONTINENTAL HOTELS GROUP PLC /NEW/. The company exhibits strong financial stability with a beta of 0.83, and a stability factor in the 81th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

We identify no major risk factors at this time. The company's stability factor sits at the 81th percentile with quality at the 63th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: healthy gross margins of 59% provide a buffer against cost pressures; above-average stability (81th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate INTERCONTINENTAL HOTELS GROUP PLC /NEW/'s capital allocation as Poor. Key concerns include low returns on equity (-29.5%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — INTERCONTINENTAL HOTELS GROUP PLC /NEW/ significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, INTERCONTINENTAL HOTELS GROUP PLC /NEW/ receives a Buy rating with a composite score of 67.2/100 (rank #188 of 7,333). Our quantitative framework assigns a Narrow Moat (49/100, trend: stable), Low uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 70/100.

Our analysis supports a constructive view on INTERCONTINENTAL HOTELS GROUP PLC /NEW/. The combination of identifiable competitive advantages, low uncertainty, and poor capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.