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Bear of the Day: Playa Hotels (PLYA)

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Playa Hotel & Resorts (PLYA - Free Report) is in the hardest hit industry during the pandemic: hospitality. This Zacks Rank #5 (Strong Sell) is hoping for brighter days in 2021 as the coronavirus vaccine rolls out globally.  

Playa operates 21 all-inclusive hotels in Mexico, Jamaica and the Dominican Republic with 8,172 rooms. It partners with popular brands such as Hilton, Hyatt, Dreams, Panama Jack, Jewels, Capri and Sanctuary Cap Cana.

In the third quarter of 2020, Hyatt was the largest brand by room percentage at 39%. Hilton at 22%, Dreams at 17%, Panama Jack at 9%, Jewels at 5% and Capri and Sanctuary Cap Cana at 4% each.

A Miss in the Third Quarter

On Nov 4, Playa reported its third quarter results and missed on the Zacks Consensus by $0.06. Earnings were a loss of $0.57 versus the consensus of a loss of $0.51.

The net loss was $78.6 million compared to a net loss of $30.5 million in 2019.

In the quarter, for open resorts, occupancy was 21.5%. It ranged across the company's various regions.

At open resorts, occupancy was 27.5% in the Yucatan properties, 21.4% in the Pacific coast, 13.2% in the Dominican Republic and 16.6% in Jamaica.

As of Nov 1, 2020, 18 out of its 21 resorts had reopened and it expected a full reopening of all of its properties by the end of 2020.

The company believed in November that Mexico would see the best demand as it had kept consistent travel policies throughout the pandemic and the airlines have been adding more flights and capacity there.

Cash and Cash Burn Rate

As of Sep 30, 2020 the company had $195.5 million in cash and cash equivalents, excluding $27.6 million of restricted cash.

Total interest-bearing debt was $1.267 billion, comprised of a Senior Secured Term Loan due 2024, a property loan agreement due 2025 and the outstanding balance on the Revolving Credit Facility.

The Revolving Credit Facility was $84.7 million as of Sep 30, 2020, due 2022.

The cash burn rate for the third quarter was the following:

July: $18 million
August: $15.4 million
September: $16.2 million

Selling Dreams Puerto Aventuras

On Nov 4, Playa announced it would sell the Dreams Puerto Aventuras property in Mexico for $34.5 million.

The deal would enhance the company's cash position and allow them to focus on their core assets which includes the Hilton and Hyatt properties.

The deal is expected to close in the first quarter 2021 but the company warned that any deal was not guaranteed to close.

What Vaccine? 2020 and 2021 Estimates Cut

Analysts lowered 2020 and 2021 estimates after the third quarter earnings report.

3 estimates were lowered over the past 2 months to a loss of $1.47 from a loss of $1.36. That's an earnings decline of 2,200% as the company made $0.07 in 2019.

Analysts are bearish on next year as well. 3 estimates were also lowered during this time for 2021.

The 2021 Zacks Consensus fell to a loss of $1.03 from a loss of $0.80.

While that's earnings growth of 29% from 2020, it's still a significant earnings loss.

Shares Rally on the Vaccine Recovery Hope

The travel stocks have seen a big rally since Pfizer announced the results of its vaccine trial in early November 2020.

Playa is up 56.4% in the last 6 months, including 28.3% over the last 90 days.

It's still down 34.6% year-to-date, however.



Winter is peak season for the Caribbean and Mexico.

Will Playa reduced its cash burn rate further in the fourth quarter?

There are a lot of unknowns for the hotel businesses right now.

The industry ranks in the bottom 4% of all Zacks industries.

Playa's partners, Hilton (HLT - Free Report) and Hyatt (H - Free Report) are facing the same pressures. Hilton is a Zacks Rank #3 (Hold) and Hyatt is a Zacks Rank #4 (Sell).

The vaccine is likely already priced into these shares.

Investors interested in the hotel companies might want to wait for a pullback in the shares before diving in.

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Hyatt Hotels Corporation (H) - free report >>

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Playa Hotels & Resorts N.V. (PLYA) - free report >>

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