UPDATE: Morgan Stanley Initiates Coverage on DiamondRock Hospitality on Good Upside from Current Levels

In a report published Thursday, Morgan Stanley analyst Thomas Allen initiated coverage on DiamondRock Hospitality Company (NYSE: DRH) with an Overweight rating and $13.00 price target.

In the report, Morgan Stanley noted, “We rate DRH Overweight with a $13 price target,representing 22% upside from current levels. Our Overweight thesis is based on the following three reasons: 1) Recent renovations and repositionings, especially the New York City portfolio, should allow for RevPAR and EBITDA outperformance in 2014; 2) the company has a clear strategy for ramping up margins over the next few years that should lead to double-digit EBITDA growth and shift DRH from a laggard to a leader; and 3) DRH's high quality, urban centric portfolio and low leverage positions it well given current trends. Trading at 11.8x EV / 2014e EBITDA and $260k per key, we think DRH shares offer an attractive entry point. Our $13 price target is based on ~13.5x EV / 2014e EBITDA. While this is ahead of DRH's 12.0x 5-year average and a premium to the group's current 12.2x average, given our expectation of 16% '13-16 EBITDA CAGR, we feel the re-rating is warranted.”

DiamondRock Hospitality Company closed on Wednesday at $10.56.