More Room Left For Hyatt Stock Gains After 15% Growth This Year?

October 7th, 2024 by Trefis Team

-2.83%

Downside

148

Market

144

Trefis

Hyatt Hotels

Hyatt Hotels Corporation stock (NYSE: H) has gained close to 15% since the beginning of 2024 while its rival Hilton (NYSE:HLT) stock is up about 27% over the same period. There are a couple of trends driving the recent price appreciation. Travel demand has remained robust, despite concerns about the global economy. Over Q2 2024, Hyatt saw its comparable system-wide revenue per available room increase by 4.7% year-over-year (down from 5.5% y-o-y growth in Q1 2024), driven by higher occupancy levels and average room rates. The company’s operations in Asia remain the biggest drivers of growth, as greater outbound travel from Greater China to markets including Japan, Thailand, and South Korea drives growth. Moreover, the U.S. business also increased from group and business travel. Looking ahead, the hotel operator expects system-wide revenue per available room of 3.0% to 4.0% y-o-y in FY 2024. It also anticipates a 5.5% to 6.0% increase in net room growth. In addition, the company’s adjusted EBITDA is expected to land in a range of $1.10 billion to 1.14 billion in FY 2024 compared to $1.03 billion in FY 2023.

Admirably, H stock has generated better returns than the broader market in each of the last 3 years. Returns for the stock were 29% in 2021, -6% in 2022, and 45% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could H see a strong jump?

Hyatt primarily makes money from fee-based revenue, licensing, and other services, allowing third-party owners and franchisees to use Hyatt’s brand and intellectual property. In Q2 2024, the company added 18 new hotels and 3,251 rooms to its portfolio. The company has seen its pipeline grow 9% y-o-y to a record 130K rooms. Hyatt had previously estimated that it would derive over 80% of its earnings via fees by 2025. For this year, the company is guiding for fee-based revenues of $1.1 billion to $1.13 billion.

Hyatt has also been increasingly focused on deal-making activity, with deals in recent years including the Mr & Mrs Smith booking platform, offering direct booking access to a select collection of boutique and luxury properties, and its 2021 deal for Apple Leisure Group, a luxury resort-management services, travel, and hospitality company. Recently, Hyatt completed the sale of its 1,641-room Hyatt Regency Orlando and adjacent 45 acres of land to affiliates of RIDA Development Corporation and an Ares Management Real Estate fund for approximately $1.07 billion, while retaining a long-term management agreement under the Hyatt Regency brand. Hyatt also entered into an agreement to pay $150 million for 21 Standard International properties, and another $185 million to acquire an additional 30 new projects in the Standard International pipeline over time for a total value of $335 million. This acquisition along with the sale of the Hyatt Regency Orlando is part of the company’s capital allocation strategy to sell owned hotels and reinvest in asset-light platforms to accelerate growth.

While the increasing pivot to fee-based businesses, a focus on more premium properties, and a strong and growing travel market should help Hyatt in the long run, we think the stock is fairly priced at current levels. At the current market price of about $150 per share, Hyatt trades at roughly 33x projected 2024 earnings, which aligns compared to peers. We value H stock at about $144 per share, which is almost in line with 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.

It is helpful to see how its peers stack up. Check out how Hyatt’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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Returns	Oct 2024 MTD [1]	2024 YTD [1]	2017-24 Total [2]
H Return	-1%	15%	179%
S&P 500 Return	-1%	20%	155%
Trefis Reinforced Value Portfolio	-1%	14%	764%

[1] Returns as of 10/4/2024
[2] Cumulative total returns since the end of 2016

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