UPDATE: Goldman Sachs Starts La Quinta Holdings (LQ) at Sell
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(Updated - September 26, 2016 9:08 AM EDT)
Goldman Sachs initiated coverage on La Quinta Holdings (NYSE: LQ) with a Sell rating and a price target of $9.00, implying downside of 20%. Analyst Stephen Grambling said La Quinta is most at risk to the fundamental and structural challenges currently facing the lodging industry.
"LQ ranks the lowest in our GS Lodging Locator with only 12% of existing supply, as well as a low pipeline, in the most attractive markets. LQ also faces the threat of incoming competition, with 38% of the midscale/economy pipeline within three miles of a La Quinta property," said Grambling.
The analyst continued, "LQ ranks the highest for mobile risk, with 49% of bookings coming from property direct with a short lead time. As consumers shift their booking behavior, distribution costs are likely to increase, and pricing power may be more limited. Moreover, LQ’s weak digital presence (LQ did not appear on the first page of TripAdvisor mobile app results in 55% of popular markets) could require additional investments in advertising and/or properties to remain competitive."
Discussing its weak CROCI and aging assets, the Grambling said, "LQ has the lowest CROCI in our coverage at 7% (vs. the average at 15%), high asset ages, and significant underinvestment in fixed assets (as defined by capex relative to depreciation and amortization). We believe LQ may need to ramp investments (thereby increasing expenses and lowering FCF), which could slow refranchising and asset sales."
Shares of La Quinta Holdings closed at $11.31 yesterday.
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