RLJ Lodging Stock Valuation May Be Too Attractive To Ignore

After a 16 percent-decline since the start of 2017, analysts at Canaccord Genuity are now convinced that RLJ Lodging Trust (NYSE: RLJ) is a compelling stock to own. The firm's Ryan Meliker upgrades RLJ Lodging's stock from Hold to Buy with a price target boosted from $21 to $23.

RLJ Lodging, a self-administered real estate investment trust that specializes in hotels across 21 states, should begin showing an acceleration in growth as soon as the fourth quarter, Meliker commented in his upgrade note. During the final quarter of 2017 transient trends will likely remain strong and revenue per average room growth across the hotel industry will also contribute to improving investor sentiment towards the sector.

RLJ Lodging happens to be trading at one of the "deepest discounts" within the sector and should benefit from multiple expansions, the analyst continued. Specifically, the stock is trading at a 17-percent discount to net asset value as opposed to a long-term average of 9.8 percent and the sector average of 8 percent.

In fact, there are no other self-administered REIT that is currently trading at such a discount on NAV, the analyst added. On top of that, the stock is trading at 10.4x forward consensus EBITDA estimates versus the stock's long-term average of 11.4x and the sector's average of 11.6x.

Finally, while growth in RevPAR alone would be sufficient to boost RLJ Lodging's stock, the company is undergoing an asset sale of non-care hotels as part of the FelCor merger. This could be accretive to RLJ Lodging's earnings as soon as the coming months and "drive the gap to further close," the analyst concluded.

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