Is Hyatt Stock Attractive At $54?

The shares of Hyatt Hotels (NYSE: H) have lost 40% of their value since the beginning of this year due to the coronavirus pandemic. Despite a steep fall in travel demand, we believe that Hyatt stock has a sizable upside potential due to strong domestic presence, the growing management & franchise segment, and a strengthened liquidity position. While Hyatt’s stock is currently trading at the levels observed in 2017, the company’s management & franchise revenues have observed a 28% growth over the same period, primarily due to a 22% expansion in the total room portfolio. Our dashboard Why Hyatt Stock moved -24% highlights the key numbers triggering the recent fall in the stock’s value and we explain more below.

Profitability improved along with revenues

Since 2017, Hyatt’s total revenues have grown by 11% from $4.5 billion in 2017 to $5 billion in 2019. However, the management and franchise fees, which Hyatt earns as a percentage of third-party hotel revenues, increased by 22% from $480 million in 2017 to $586 million in 2019. As a part of an asset-light strategy, the company has been augmenting its brand portfolio to increase management & franchise contracts. Thus, the adjusted earnings per share has surged from $1.48 in 2017 to $2.05 in 2019.

As a result, the company has been consistently returning capital to shareholders by repurchasing its common stock. Since 2017, the total shares outstanding have been reduced by 16% to 106 million in 2019, as the company returned $2 billion to shareholders. Also, the growing earnings per share coupled with expanding M&F segment room portfolio has supported Hyatt’s P/E multiple, which has remained above 40x except 2018 where it fell to 33x, before falling to 26x recently. Per recent filings, the company has a strong cash position to support operations for more than a year. Considering Hyatt’s strong balance sheet and a sharp fall in the P/E multiple, we expect the stock to recover as the travel demand picks-up in the coming months.

So what’s the likely trigger and timing to this upside?

With over 21 million infections globally, the coronavirus crisis has affected the livelihoods of people across the world. Certain industries such as air travel, oil & gas, and apparel have been hit the most. However, improving recovery rates and easing of lockdown measures are expected to give an impetus to the stalling global economy. Over the coming months, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the current valuations become important in finding value. Though market sentiment can be fickle, and evidence of a sustained uptick in new cases could spook investors once again.  

What if you’re looking for a more balanced portfolio instead? Here’s a top quality portfolio to outperform the market, with 170% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk. It has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams