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Bear of the Day: Hyatt Hotels (H)

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Hyatt Hotels Corporation (H - Free Report) started to see a recovery from the worst of the pandemic but now a second outbreak is hitting North America and Europe. This Zacks Rank #5 (Strong Sell) is expected to see a decline of over 300% in earnings this year.

Hyatt Hotels is a global hospitality company offering 21 brands under the names of Park Hyatt, Miraval, Grand Hyatt, Alila, Andaz, The Unbound Collection by Hyatt, Destination, Hyatt Regency, Hyatt, Hyatt Ziva, Hyatt Zilara, Thompson Hotels, Hyatt Centric, Caption by Hyatt, Joie de Vivre, Hyatt House, Hyatt Place, tommie, UrCove, Hyatt Residence Club and Exhale.

Its portfolio includes more than 950 hotels, all-inclusives and wellness resort properties in 67 countries on six continents.

It also operates the World of Hyatt loyalty program.

A Big Miss in the Third Quarter

On Nov 4, Hyatt Hotels reported its third quarter results and missed on the Zacks Consensus. Earnings were a loss of $1.48 versus the Zacks Consensus of a loss of $1.25. That's a $0.23 miss.

The operating environment improved in the third quarter. Hyatt was able to double the number of room nights sold as compared to the second quarter.

Hyatt also managed to open 27 new hotels, representing 4,300 rooms, which was a record number of hotel openings for ANY third quarter in the company's history. To do that during a global pandemic is impressive.

Comparable system-wide RevPAR, however, decreased 72.0% year-over-year.

But RevPAR continued to recover across all of Hyatt's regions during the quarter and into October.

The recovery from the second quarter was led by occupancy gains in Greater China, due to strong domestic demand, and in select hotels in the United States.

As of Oct 31, 2020, 94% of the total system-wide hotels, or 92% of rooms, were open.

Analysts Cut Full Year Estimates

Despite the improvement in the RevPAR off the second quarter lows, analysts still cut 2020 and 2021 earnings estimates after the report.

2 estimates have been cut in the last week which has pushed down the 2020 Zacks Consensus Estimate to a loss of $4.98 from a loss of $4.46 just 30 days ago.

That's an earnings decline of 324.9% as the company made $2.05 in 2019.

2 estimates have also been slashed for 2021 which has pushed down the Zacks Consensus to $2.93 from $.209 in the last month.

Hyatt's revenue was $5 billion in 2019 and is expected to fall to $2.11 billion in 2020. Analysts expect it to rebound in 2021, but only back to $3.3 billion.

Access to Liquidity

Hyatt has cash and cash equivalents of $1.778 billion, restricted cash of $12 million and short-term investments of $310 million.

It also has undrawn borrowing availability of $1.499 billion under a revolving credit facility.

Hyatt believed it had adequate existing liquidity to fund operations for over 36 months based on third quarter 2020 demand levels.

Shares Bounce Higher on Vaccine Hopes

The hotel industry has been one of the hardest hit during the pandemic.

The news that Pfizer and Moderna may begin rolling out vaccines in the United States as soon as December 2020 lifted the shares off recent lows.

Over the past month, shares have rallied 27% on the "hope" trade.

They're still down 21.9% year-to-date, however.

Hyatt suspended its share buybacks on March 3, 2020. The dividend was also suspended through the first quarter of 2021.

Hyatt, like other big hotel companies such as Hilton Worldwide (HLT - Free Report) and Marriott (MAR - Free Report) , is just trying to make it through to 2021 when, hopefully, there will be improvement thanks to the vaccines.

When should investors dive into the big hotel companies?

For now, the analysts are more bearish on 2021 than they were a month ago. Investors should keep an eye on the earnings estimates because those will signal the turnaround.

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Marriott International, Inc. (MAR) - free report >>

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Hilton Worldwide Holdings Inc. (HLT) - free report >>