Should Hyatt Stock Observe A Correction Post Q4 Results?

H: Hyatt Hotels logo
Hyatt Hotels

After gaining 39% in the past quarter due to multiple vaccine approvals and momentum in broader markets, Hyatt stock (NYSE: H) remains 15% below pre-Covid highs. As fears surrounding the new strains of coronavirus weigh on travel demand, hotel occupancy rates are expected to remain subdued until a major portion of the population gets vaccinated. Despite observing decade-low occupancy rates during the second quarter, Hyatt Hotels reported just $230 million of operating cash outflow supported by lower resort expenses incurred by its management & franchise segment. Given the company’s cash preservation measures including dividend suspension and capex curtailment, Trefis believes that Hyatt stock should retain its value after reporting full-year 2020 results on February 17. We highlight the historical trends in revenues, earnings, and stock prices in an interactive dashboard analysis on Hyatt Earnings Preview: How Did H Fare In 2020?

Hyatt’s financial and operational metrics during the pandemic

Hyatt’s revenues dropped by 20%, 80%, and 67% (y-o-y) in Q1, Q2, and Q3, respectively. However, the company reported just $463 million of operating cash outflow for the first nine months of 2020 – much lower than the $1.4 billion drop in stock’s market capitalization since pre-Covid highs. More importantly, the Americas M&F segment observed a positive EBITDA during the pandemic while the owned & leased properties and other M&F segments reported losses.

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As a part of the asset-light strategy, Hyatt has been converting its owned & leased hotels to managed & franchise category to limit risk and focus on expansion. Given Americas’ 60% share of the total room portfolio and ongoing vaccination drive to reach 75% of the U.S. population by October, a gradual recovery in travel demand and hotel occupancy rates is likely.


How has Hyatt stock fared in comparison to the S&P 500?

Hyatt stock declined from levels of around $90 in February 2020 (pre-crisis peak) to levels of around $47 in March 2020 (as the markets bottomed out), implying H stock lost 47% from its approximate pre-crisis peak. With the easing of restriction measures and approval of multiple vaccines, the stock has gained 60% to reach $76. In comparison, the S&P 500 Index first fell 34% as Covid-19 cases accelerated outside China and gained 76% after the Fed’s intervention coupled with Pfizer’s vaccine launch.

With Hyatt stock observing strong gains, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how how the stock valuation for Home Depot vs World Wrestling Entertainment shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

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