Initiating Coverage: Xenia Hotel & Resorts

Xenia Hotels & Resorts, Inc. has been given a “Buy” rating with a one-year price target of $16.05, indicating a potential 15% return. This recommendation is based on a detailed comparison of the company’s financial performance with its competitors, covering various financial aspects such as income statements, cash flows, balance sheets, dividends, and share value.

The company’s reported revenue of $1,025.44 million over the last twelve months exceeds the median of its peers by $226.97 million and maintains a 100% positive revenue growth over two years, surpassing the industry’s 92.4% average. Despite this, its revenue growth rate of 3% is slightly below the industry’s 5%, suggesting a slower pace in increasing revenue. Its net income positivity rate is 100% for the last two years, which is significantly higher than the 53.3% industry average, showing strong profitability. However, a 36% decrease in net income growth over the same period points to challenges in keeping net income levels high.

The Levered Free Cash Flow (LFCF) of $77.16 million for the last twelve months is competitive, though slightly below the industry median. The company has consistently shown a 100% positive LFCF over the past two years, exceeding the industry average of 91.9%. Yet, a 34% reduction in LFCF growth indicates difficulties in maintaining cash flow.

Balance sheet analysis reveals an Altman Z-Score of 1.11, suggesting a higher risk of financial instability compared to a benchmark of 2.40. However, with a shareholder yield of 12.5% and a buyback yield of 8.6%, the company outperforms the negative industry averages, demonstrating effective shareholder value enhancement. The debt to tangible equity ratio of 109.9% shows a conservative debt strategy and a healthier balance sheet.

The current dividend yield is 3.3%, lower than the industry median of 7.5%. Nevertheless, the dividend sustainability, with a dividend yield to LFCF yield ratio of 63.4%, is much stronger than the industry’s 107.1%, indicating a well-supported dividend payout. The company also boasts a 20.0% dividend growth rate over the last twelve months, far exceeding the industry’s -3.4%.

Share value analysis indicates that shares are undervalued at $14.71, compared to a valuation of $16.05. This is based on using 45% of past LFCF for dividend forecasts, applying a 15X dividend multiple, and accounting for dividend stability with a 25% premium or discount. This highlights the importance of consistent dividends in valuation and suggests careful investment consideration.

The anticipated total return of 15% for the next year combines the potential price increase to $16.05 and an expected dividend payout of $0.86. This projection highlights the opportunity for returns, acknowledging that actual results may differ.

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