Limited Upside In Hyatt Stock?

H: Hyatt Hotels logo
Hyatt Hotels

[Updated 8/02/2021]

The travel and tourism sector again faces a grim near-term outlook despite widespread vaccination and a sharp rise in domestic air travel demand. The daily new Covid cases in the U.S. have more than doubled in the past two weeks – raising concerns of macroeconomic slowdown and re-imposition of restriction measures. Hotel stocks, including Hyatt (NYSE: H), have observed a quick rebound in recent weeks – leading to a limited opportunity for near-term gains. With 974 hotels, more than 200,000 rooms, and 20 different brands, Hyatt is a global hospitality company with a strong presence in the North America and Asia Pacific regions. Trefis highlights the quarterly trends in revenues, earnings, stock price, and expectations for Q2 2021 in an interactive dashboard analysis, Hyatt Hotels Earnings Preview.

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[Updated 6/04/2021] – Hyatt Stock: Should You Buy The Dip?

The shares of Hyatt Hotels (NYSE: H) have been trending downward in recent weeks largely due to a continued slump in travel demand and fear of new coronavirus variants triggering another travel disruption. Per recent earnings, Hyatt reported a sizable improvement in hotel occupancy rates in the U.S., Middle East, and China assisted by mass vaccination programs and a dip in new Covid-19 cases. Notably, Owned and Leased segment’s occupancy rate surged from 18.6% in Q4 2020 to 28.1% in Q1 2021. Currently, Hyatt’s market capitalization is $1.3 billion lower than pre-Covid levels and Trefis believes that the stock can continue to observe a slight correction as the company reported $700 million of operating cash outflow during the pandemic, which is likely to expand in the coming quarters. Our interactive dashboard on Hyatt’s Valuation highlights the historical trends in revenues and margins along with near-term projections.

Low occupancy rate has a low impact on long-term valuation

As a part of the asset-light strategy, Hyatt has been converting its owned & leased hotels to the managed & franchise category to limit risk and focus on expansion. Notably, the company reported 6.5% of net room growth during the first quarter. Per the divestment plan, Hyatt is targeting $500 million of proceeds until March 2022. Notably, the Management & Franchise (M&F) segment is projected to generate around three-quarters of Hyatt’s earnings by 2025. The M&F segment earns fees on long-term management or franchise agreements with third-party property owners. Thus, low occupancy rates due to the pandemic poses less of a downside risk to the company’s long-term valuation. Moreover, the company’s cash preservation measures including dividend suspension and capex curtailment act as safeguards against any adverse pandemic scenario.

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 the ongoing vaccination drive, the stock has gained 68% to reach $79. In comparison, the S&P 500 Index first fell 34% as Covid-19 cases accelerated outside China and gained 80% after the Fed’s intervention coupled with Pfizer’s vaccine launch.

Is there a better alternative to Hyatt Hotels stock? Hyatt Hotels Stock Comparison With Peers summarizes how H compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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