Why Hyatt Hotels Is Worth $77

by Trefis Team
-0.52%
Downside
77.39
Market
76.99
Trefis
H
Hyatt Hotels
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Hotel giant Hyatt Hotels (NYSE: H) reported mixed results in 2018, which saw a marginal decline in revenue with an improved bottom line. The company’s revenue fell by under 1% y-o-y to $4.45 billion, while its adjusted earnings per share came in at $1.98 (+33% y-o-y). The sluggish top-line performance was largely due to continued weakness in its owned and leased segment – as a result of intense competition and asset recycling initiatives. However, better than expected performance in terms of Management and Franchise Fees across regions softened this impact. We expect this segment to be the driving force for the company in 2019. Further, various strategic initiatives – acquisitions, divestitures, and integration towards an asset-light model – should drive growth for Hyatt in the long run. Below we take a look at what to expect from Hyatt in 2019.

We have an updated $77 price estimate for Hyatt’s stock, which is slightly higher than the current market price. Our interactive dashboard on what to expect from Hyatt in 2019 details our expectations for the company’s earnings. You can modify the charts in the dashboard to gauge the impact that changes in key drivers for Hyatt would have on the company’s earnings and valuation, and see all of our Consumer Discretionary company data here.

We have arrived at a $77 price estimate for Hyatt based on revenue projections of $4.7 billion for FY 2019, net income of $471 million, a P/E multiple of 18, and a share count of 110.3 million.

Factors That Should Drive Growth

Hyatt has been shuffling its portfolio by divesting real estate assets in a bid to tackle the relatively sluggish sales in its owned and leased segment. Further, it emphasized its long-term plan to shift to an asset-lighter business model, in a bid to strengthen its financial flexibility and grow through management and licensing agreements. As a result, the company is heavily invested in strategies that should drive growth in the long term. Additionally, the acquisition of Two Roads, coupled with the proposed opening of Hyatt Regency Hesperia Madrid as well as Hyatt Regency Barcelona Fira, should not only expand its market presence but also enhance its resort offerings. Further, its entry into Ethiopia and Kuwait should further strengthen its presence in Africa and the Middle East. We expect the aforementioned strategic initiatives should help Hyatt expand its global outreach. Additionally, a strong economy, increased consumer confidence and a solid labor market should further strengthen its fast-growing select service segment in certain markets – China, the Middle East, and India. Consequently, we expect Hyatt’s top line to grow by nearly 5-6% to about $4.7 billion in FY2019.

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