IHG Stock Falls as Middle East Rooms Slide 19%

InterContinental Hotels Group , the hotel powerhouse behind Holiday Inn and InterContinental, reported higher first-half revenue Tuesday, but the market wanted more. London shares dropped roughly 1.8% in early trading as second-quarter RevPAR growth cooled to 3.5% from 4.4% in the first quarter. The real damage came from the Middle East, where RevPAR sank 19% as the regional conflict hammered travel. That weakness was sharp enough to overshadow another strong quarter in IHG's biggest market.

The Americas did the heavy lifting. Second-quarter RevPAR jumped 5.4%, while Greater China still squeezed out 0.8% growth. Across the first half, global RevPAR climbed 4.1% and operating profit from reportable segments rose 10% to $665 million. Fee margin expanded 1.2 percentage points to 65.9%. And IHG kept building. The group opened 31,500 rooms across 197 hotels and signed another 49,200 rooms, pushing its development pipeline to roughly 348,000 rooms. That pipeline matters: more rooms mean more fees, and more fees can mean more profit without IHG having to own the underlying real estate.

But here is where the story gets interesting. According to Reuters, that $665 million operating profit still missed the roughly $673 million analysts expected. The Middle East represents only about 5% of IHG's global room inventory, so management believes stronger demand elsewhere can swallow the hit and keep full-year expectations intact. IHG is also returning cash, with 42% of its $950 million buyback completed by June 30.

The problem? The stock is no bargain. At $155.99 on Aug. 11, IHG trades 16.47% above its GF Value estimate of $133.93. The business is growing, margins are expanding and the hotel pipeline is loaded. But with the shares already running ahead of GF Value, good growth may no longer be enough. IHG now needs to deliver the numbers to match the price.