Is Hyatt Stock Still A Buy Following Its Recent Rally?

Hyatt stock (NYSE:H) has rallied by almost 21% year-to-date, considerably outperforming the broader markets.  There are a couple of trends driving the recent price appreciation for Hyatt stock. Firstly, easing China’s zero-Covid policy is expected to benefit Hyatt meaningfully. Hyatt has big expansion plans in the four and five-star hotel categories globally, with at least 352 projects in the pipeline. Of this, China is the biggest target market accounting for 146 developments, and a return to normalcy in the market should help Hyatt.

Investors have also taken positively to Hyatt’s recent dealmaking activity to expand its portfolio. For instance, the company entered into a collaboration agreement with Germany’s Lindner Hotels adding over 30 hotels and 5,500 rooms across seven European countries. The company also recently closed a deal to buy Dream Hotel Group’s lifestyle hotel brand and management platform. These deals are relatively asset-light and also focus on more premium properties that are currently in demand. There have also been some positive signs in the macro-environment, with inflation moderating and the Federal Reserve tempering its pace of interest rate hikes. The most recent rate hike in January was at 0.25%, down from multiple hikes as high as 0.75% last year. This could also be helping travel and leisure stocks to an extent.

That said, with Hyatt rallying to levels of about $110 per share presently, we think the stock is a bit expensive. Hyatt trades at roughly 41x projected 2023 earnings, compared to rival Marriott which trades at just about 23x forward earnings. The company is also quite highly leveraged, with total debt standing at roughly $3.8 billion as of Q3 2022, up from around $1.62 billion at the end of 2019 (just before the Covid-19 pandemic). Moreover, despite the recent signs of cooling inflation, the near-term picture for the U.S. economy could remain mixed, given that interest rates remain at near the highest levels seen in around 15 years. We value H stock at about $96 per share, which is about 12% below the current market price. See our analysis on Hyatt Valuation: Is H Stock Expensive Or Cheap? for more details on Hyatt’s valuation and how it compares with peers. For more information on Hyatt’s business model and revenue trends, check out our dashboard on Hyatt Revenue: How H Makes Money.

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[1] Month-to-date and year-to-date as of 2/13/2023
[2] Cumulative total returns since the end of 2016

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