After the weak performance of the stock YTD (-20%), we revisit Melia''s investment case. We still see headwinds for 2023 that we believe are not fully priced in, keeping the risk/reward skew to the downside, in our view. We cut our FY23-24 EPS by c.40% on average, and now stand 22% below Consensus, seeing risk of further downgrades. We reiterate our Underperform rating. A rather unconvincing strategy In our view, Melia''s strategy/pipeline growth is not differentiated enough for it to outperform the hotel sector. Despite investments made in the past, Melia''s portfolio remains tilted to mid-upper scale hotels that are more exposed to cyclical swings and that could see their earnings/margins heavily impacted in the event of REVPAR drops. A tougher season ahead for the hotel sector Decreasing household saving rates, limited corporate spending recovery and higher airline tickets are our main concerns for the next season. In particular, we are more sceptical about the performance of hotels in EMEA and Spain given Melia''s exposure to corporate travel spending in EMEA and the high sensitivity of Spanish hotels to economic fluctuations. Margins under pressure: limited tools to contain inflation in 2023 and higher financial costs Margins will likely be weighed down by: 1) Favourable electricity hedges rolling off at the end of 2022; 2) Labour contract renegotiations in Spain; 3) Higher level of direct sales. We expect a 310bps EBITDA margin contraction in 2023 (23.4% vs 26.5% in FY19). In addition, we expect higher financial costs (+c.EUR7m vs 2022) as c.40% of Melia''s gross debt is on variable rates. Undemanding valuation... but not attractive either Melia currently trades at 9.6x FY23 EV/EBITDA, very much in line with historical multiples. Its 25% discount vs peers could be seen as an entry point, but has been higher during downturns, and given the macro context we don''t rule out it widening. We note that the size of net debt (2/3 of EV when...