Hyatt Hotels Corporation ( H Quick Quote H - Free Report) is likely to benefit from solid leisure transient demand, acquisition initiatives and expansion efforts. However, a decline in revenue per available room (RevPAR) from pre-pandemic levels is a headwind. Let us delve into the factors that highlight why investors should retain the stock for the time being. Growth Catalysts
Shares of Hyatt have gained 30.3% in the past year compared with the
industry’s 17.7% growth. The upside can be attributed to a rise in leisure transient demand, easing of travel restrictions and reopening of borders across Europe. During third-quarter 2021, RevPAR (across Europe, Africa, Middle East and Southwest Asia segments) surged 162.6% from the year-ago quarter’s level. The company witnessed improvements in China, with RevPAR coming to 78% of the pre-pandemic levels. The company anticipates the growth momentum to continue, subject to successful vaccination rollouts and leniency in travel restrictions. Image Source: Zacks Investment Research
Hyatt is invested in strategies related to various acquisitions and divestitures that can drive growth. On Nov 1, 2021, the company completed the acquisition of Apple Leisure Group, thereby adding 96 properties in 10 countries to its portfolio of resorts. The acquisition not only doubles Hyatt’s portfolio but also boosts its European footprint by more than 60%. Through the integration of its luxury resort offerings, Hyatt expects to increase its system-wide stabilized leisure transient revenue mix to more than 50% in the upcoming periods. The acquisition paves a path for higher optimization of capital deployment. Backed by Apple Leisure Group's asset light platform, the company anticipates transforming its earnings to approximately 80% fee-based by 2024-end.
The company’s new signings across its brands globally have consistently outpaced openings. In 2018, 2019 and 2020, Hyatt registered net room growth of 13.6%, 7.4% and 5.2% on a year-over-year basis, respectively. During third-quarter 2021, 20 new hotels (or 4,599 rooms) joined Hyatt's system. This contributed to a 6.9% increase in net rooms from third-quarter 2020 levels. Despite the coronavirus crisis, Hyatt anticipates net unit growth of 6% in 2021. It is optimistic about continued growth in demand for the upcoming quarter of 2021. Coming to hotel re-openings, approximately 99% of total system-wide hotels were open as of Jun 30, 2021, compared with 98% as on Jun 30, 2021.
Maintaining liquidity during the pandemic is a herculean task during the pandemic. Hyatt stated that it has enough liquidity to survive the coronavirus crisis for some time. As of Sep 30, 2021, Hyatt reported cash and cash equivalents (including investments in highly-rated money market funds and similar investments) of $2,418 million compared with $1,144 million in the previous quarter. The company reported undrawn borrowing availability of $1,500 million under Hyatt's revolving credit facility. Based on current-quarter demand levels, the company anticipates that its cash position, short-term investments and cash from operations together with borrowing capacity as well as access to the capital markets will be adequate to meet funding requirements and capital-deployment objectives. Total debt as of Sep 30, 2021, stood at $2,988 million compared with $3.246 million as of Jun 30, 2021. The times-interest-earned ratio at the end of the third quarter came in at 0.2x compared with (2.8)x in the previous quarter. This indicates that the company is better positioned to meet debt obligations.
With travel restrictions and quarantines in place, Hyatt has been witnessing dismal RevPAR. In spite of sequential improvements in RevPAR, it is still lagging behind the pre-pandemic levels. During third-quarter 2021, the company’s system-wide RevPAR declined 31.8% compared with 2019 levels.
Going forward, the company does not expect results to return to pre-COVID levels until business traveler and consumer confidence improve (associated with pandemic-related risks) and government and corporate restrictions on travel are fully lifted. Although the company commenced its recovery process, we believe that the emergence of the new COVID-19 variant is likely to create volatility in demand.
Zacks Rank & Key Picks
Hyatt currently carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Some better-ranked stocks in the Zacks Consumer Discretionary sector include Hilton Grand Vacations Inc. ( HGV Quick Quote HGV - Free Report) , Bluegreen Vacations Holding Corporation ( BVH Quick Quote BVH - Free Report) and Camping World Holdings, Inc. ( CWH Quick Quote CWH - Free Report) . Hilton Grand Vacations sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 411.1%, on average. Shares of the company have increased 66.9% so far this year. The Zacks Consensus Estimate for Hilton Grand Vacations’ current financial-year sales and earnings per share (EPS) suggests growth of 189.5% and 158.1%, respectively, from the year-ago period’s levels. Bluegreen Vacations flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 695%, on average. Shares of the company have surged 158.7% so far this year. The Zacks Consensus Estimate for Bluegreen Vacations’ current financial-year sales and EPS indicates a rise of 27.5% and 199.3%, respectively, from the year-ago period’s levels. Camping World carries a Zacks Rank #2 (Buy). The company benefits from the launch of a fresh peer-to-peer RV rental marketplace and a mobile service marketplace. It has been investing heavily in product development. Camping World has a trailing four-quarter earnings surprise of 70.9%, on average. Shares of the company have appreciated 57.9% so far this year. The Zacks Consensus Estimate for CWH’s financial-year sales and EPS suggests growth of 25.9% and 80.1%, respectively, from the year-ago period’s levels.