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Here's Why You Should Retain Hyatt (H) in Your Portfolio

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Hyatt Hotels Corporation (H - Free Report) is likely to benefit from solid leisure transient demand, integration of Apple Leisure Group and asset disposition commitment. Also, sequential improvements in group travel and business transient demand bode well. However, a decline in revenue per available room (RevPAR) from pre-pandemic levels is a headwind.

Let us discuss the factors that highlight why investors should retain the stock for the time being.

Growth Catalysts

Shares of Hyatt have gained 10.6% in the past year against the industry’s fall of 1.3%. The upside can be primarily attributed to a rise in leisure transient demand, easing of travel restrictions and ramped-up airline capacity. Despite travel restrictions in certain places in the first quarter of 2022, leisure transient revenue reached 4% above 2019 levels on a comparable system-wide basis. The company is optimistic that demand will remain robust in 2022.

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Meanwhile, sequential improvements in group travel and business transient demand have been aiding the company’s performance. The company stated that system-wide group rooms revenues, which were down 43% (from 2019 levels) in the fourth quarter of 2021, improved to being down 25% (from 2019 levels) in March 2022 and down 14% (from 2019 levels) in April 2022. As people return to the office, travel restrictions are eased and more cross-border travel resumes, the company remains optimistic about the recovery of business transient and its continued momentum over the back half of the year. This and strength in short-term bookings coupled with strong food and beverage spending are likely to have supported the recovery process in the upcoming periods.

Increased focus on the integration of Apple Leisure Group Bode well. During the first quarter of 2022, Apple Leisure Group, Vacations business improved profitability and margins through strong business and technology optimization. Also, it benefitted from solid demand for leisure and beach destinations. As of April 2022, the net package RevPAR for comparable ALG resorts in the Americas was up 12% from 2019 levels. Given the emphasis on distribution capabilities with an end-to-end booking process, coupled with strong operational execution, an integrated experience (with AMR and UVC program) and destination management services, the company is optimistic about ALG’s performance in 2022. The company stated that gross package revenue booked for ALG resorts in the Americas for future periods was more than 33% above 2019 levels.

During first-quarter 2022, the company made significant progress in its $2.0-billion asset disposition commitment. The company entered into purchase and sale agreements (for its owned hotels) with unrelated third parties and entered into long-term management agreements for each property. The properties include Hyatt Regency Indian Wells Resort & Spa, Grand Hyatt San Antonio River Walk and The Driskill. In May, the company signed a purchase and sale agreement concerning The Confidante Miami Beach. The company expects to close this deal by the second quarter 2022. The four transactions (valued at $812 million) represent more than 40% of the company's asset disposition commitment. The company anticipates fulfilling $2-billion disposition commitment by 2024-end. The company witnessed willingness by strategic buyers related to investments in the upgrade and repositioning of the hotels. With increased focus on enhancing the guest experience, the initiatives and a strong customer base will likely pave a path for strong management fee streams in the upcoming periods.

Concerns

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 first-quarter 2022, the company’s system-wide RevPAR declined 25% 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 are Civeo Corporation (CVEO - Free Report) , Bluegreen Vacations Holding Corporation and Funko, Inc. (FNKO - Free Report) .

Civeo sports a Zacks Rank #1 (Strong Buy) at present. The company has a trailing four-quarter earnings surprise of 1,565.1%, on average. Shares of the company have increased 81.5% in the past year.

The Zacks Consensus Estimate for CVEO’s 2022 sales and earnings per share (EPS) suggests growth of 12.5% and 1,450%, respectively, from the year-ago period’s levels.

Bluegreen Vacations sports a Zacks Rank #1. BVH has a trailing four-quarter earnings surprise of 85.9%, on average. The stock has increased 38% in the past year.

The Zacks Consensus Estimate for BVH’s current financial year sales and EPS indicates growth of 11.2% and 35.1%, respectively, from the year-ago period’s reported levels.

Funko sports a Zacks Rank #1. FNKO has a trailing four-quarter earnings surprise of 78.7%, on average. Shares of the company have declined 22% in the past year.

The Zacks Consensus Estimate for Funko’s current financial year sales and EPS suggests growth of 26.8% and 31%, respectively, from the year-ago period’s reported levels.


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