Pick Hyatt Over Vail As The Dip Continues

by Trefis Team
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Trefis
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Hyatt Hotels
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The global economic recovery took a hit after the WHO declared the Omicron coronavirus mutation as a variant of concern. Market indices along with benchmark oil prices fell sharply as investors anticipate another round of travel restrictions and a decline in discretionary spending. Consequently, the shares of Hyatt Hotels (NYSE: H) and Vail Resorts (NYSE: MTN) observed a 10% contraction on signs of near-term sluggishness in travel demand. While Hyatt stock declined from pre-Covid levels, the shares of Vail Resorts were trading at 50% above pre-Covid levels. The surge in Vail Resorts stock has been driven by the strong sales of its advance ski passes which led to an anticipation of a quick travel demand rebound in Q4 2021. Given the current macroeconomic environment and Vail Resorts’ higher financial leverage, Trefis believes that Hyatt Hotels stock is a better bet. Our dashboard Hyatt Hotels vs Vail Resorts: Industry Peers; Which Stock Is A Better Bet? details the fuller picture, parts of which are summarized below.

1. Revenue Growth

Vail Resorts’ growth has been stronger than Hyatt before the pandemic, with Vail Resorts’ revenues expanding at an annual rate of 12% from $1.6 billion in 2016 to $2.2 billion in 2019, versus Hyatt’s revenue expanding by 7% from $4.6 billion in 2017 to $5 billion in 2019.

  • Vail Resorts’ top-line expansion has been fueled by a series of acquisitions which has led to a surge in skier visits. The number of people visiting Vail’s mountain resort or regional ski area by utilizing a pass is recorded as skier visits.
  • Hyatt’s growth has been driven by its franchise business leading to a 20% expansion of the total room portfolio since 2017. The company has been selling its properties to expand the management & franchise business in recent years. The acquisition of Apple Leisure Group in the second quarter furthers Hyatt’s asset-light strategy.

2. Returns (Profits)

Coming to Returns, Vail has an edge over Hyatt, supported by a higher operating margin and a stronger topline growth.

  • In 2019, Hyatt reported an operating margin and net income margin of 4% and 15%, respectively. The company generated $396 million of operating cash on revenues of $5 billion at an operating cash margin of 8%. Subsequently, it invested $369 million in property, plant & equipment, repurchased $421 million of common stock, and received $940 million from property sales.
  • Whereas, Vail Resorts reported an operating margin and net income margin of 21% and 13%, respectively. The operating cash margin stood at 28% after adjusting for non-cash charges and working capital. With $634 million of operating cash, the company invested $596 million in capital expenses & acquisitions and repurchased $85 million of common stock.
  • Vail has been investing heavily in acquiring assets while Hyatt has been selling owned properties to establish an asset-light business model.
  • The shares of Hyatt are currently trading at a P/S multiple of 1.6 – much lower than Vail’s current P/S multiple of 7.6, indicating a sizable upside in Hyatt stock. (related: Should you, Buy The Dip In Las Vegas Sands Stock?

3. Risk

Vail looks like the riskier of the two companies from the perspective of financial leverage.

  • In 2019, Hyatt and Vail reported $5 billion and $2.2 billion of total revenues, respectively.
  • The long-term debt on Hyatt’s balance sheet stood at $2.9 billion as compared to just $2.4 billion for Vail.
  • Despite Vail’s stronger growth, the company has higher financial leverage than Hyatt – indicating a sizable downside risk if revenue growth stalls due to the new coronavirus variant. (related: Strong Domestic Presence A Boon For Hyatt Hotels Stock)

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Dec 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
H Return 0% 12% 51%
MTN Return -6% 19% 106%
S&P 500 Return -1% 22% 105%
Trefis MS Portfolio Return -1% 43% 290%

[1] Month-to-date and year-to-date as of 12/3/2021
[2] Cumulative total returns since 2017

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