Overview
UBS has upgraded its rating on Melia Hotels from Sell to Neutral and raised its price target to €8.60 from €6.70. The firm cites an improved equity story driven by stronger-than-expected top-line performance in the fourth quarter of 2025 and a reassessment of revenue-per-available-room (RevPAR) trends.
Forecast revisions and valuation
Following the Q4 2025 revenue beat, UBS increased its RevPAR growth assumption to 3.4% from 2.5%, and as a result lifted revenue forecasts by roughly 2-3% for both 2026 and 2027. The bank now models adjusted EBITDA margins of 26.7% in 2026 and 27.6% in 2027, up from prior estimates of 26.3% and 26.6% respectively. UBS also boosted its earnings per share projections by 13% for each of 2026 and 2027, setting EPS at €0.77 and €0.89 in those years.
UBS continues to apply a multiple of 6 times 2027 EV/EBITDA in valuing Melia, unchanged from its previous valuation approach.
Company margin target and drivers
Melia has outlined an ambition to raise its group EBITDA margin to 30% by 2027, from 26.2% reported in 2025. Management is targeting this improvement through several internal levers - hotel operating optimization, tighter corporate cost control, pursuing asset-light expansion, and achieving higher flow-through from top-line growth.
The company has provided operating guidance that includes an expected cost inflation rate of 2-3% for 2026 and maintains a net unit growth outlook of 2-3% for the current year.
Near-term capital allocation
Melia has earmarked €65 million for refurbishments at Paradisus Cancún and Gran Melia Don Pepe, and an additional €15 million allocated to key money. These near-term investments are reflected in UBSs caution around the pace of margin improvement.
Analyst caution
While UBS upgraded the stock and raised forecasts, the bank explicitly said it needs clearer evidence of structural improvement before becoming fully confident in the 30% EBITDA margin target. The note pointed to recent margin stickiness and the effect of upcoming refurbishments in Mexico and Spain as factors that temper conviction about the path to the target.
Implications
The revisions speak to a modestly more constructive outlook on near-term revenue and profit conversion, but UBS retains reservations about the sustainability of the margin uplift absent stronger proofs of structural change.