Investing.com -- UBS Global Research downgraded Melia Hotels (BME:MEL) to a "sell" from a "buy" rating, citing concerns over a potential deceleration in earnings growth and the broader impact of climate change on the company's operations, in a note dated Tuesday.
The brokerage set a new price target of €6.80, down from €8.92, reflecting a more cautious outlook for the near and medium term.
Shares of the Spain-based hotel group was down 2.4% at 09:16 ET (14:16 GMT).
Analysts at UBS flagged that while Melia achieved strong revenue per available room growth of over 10% in 2024, this momentum is expected to slow to about 3% in 2025.
Factors influencing this projection include the base effect, given RevPAR levels are already 20% above 2019 figures, and subdued macroeconomic conditions in key markets like the European Union and Spain.
Additionally, the analysts noted that if hotel room pricing continues to rise steeply, leisure travelers might opt for more affordable accommodations, further limiting growth.
Profit margins are also expected to face headwinds, with UBS forecasting a decline in the company's EBITDA margin from 26.7% in 2024 to 26.4% in 2025.
This marginal contraction reflects challenges in improving profitability amidst slowing revenue growth.
The report further underscored increasing risks tied to climate change, particularly for resort operators like Melia, which have significant exposure to coastal regions.
The analysts pointed to potential higher costs of capital as investors increasingly price in environmental risks, alongside operational challenges such as extreme weather events and rising sea levels.
Additionally, Melia has acknowledged that a portion of its portfolio is located in areas vulnerable to water stress and flooding.
UBS’s valuation adjustments also reflect a revised view on the longer-term risks. The analysts lowered their target enterprise value-to-EBITDA multiple to 6.4x from 7.2x, with the updated discount rate on their base-case discounted cash flow model rising from 7.9% to 8.6%.
The downgrade comes despite Melia's ongoing initiatives, such as asset rotation and deleveraging. UBS analysts said that while these steps have shown progress, the broader industry challenges and climate-related risks warrant a more cautious stance.