Hyatt Could Return $1.9 Billion To Shareholders, Analyst Says

Hyatt Hotels Corporation H has always pursued the policy of asset recycling: selling properties in order to buy hotels in high-value areas.

In its third-quarter earnings report released Nov. 2, the company said it made a minority investment in Oasis Luxury Rentals and bought the Exhale brand, while it sold Royal Palms Resort and Spa in Phoenix and Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch for $305 million.

The Analyst

Berenberg analyst Stuart Gordon issued an upgrade note on Hyatt Hotels on Thursday.

The Rating

Gordon upgraded shares of Hyatt Hotels from Hold to Buy and upped the price target from $60 to $78. (See Gordon's track record here.) 

The Thesis

Citing Hyatt's plan to initiate a more ambitious asset-recycling plan, Gordon said the potential returns from the disposal are underappreciated.

By the end of 2020, Hyatt could return $1.9 billion to shareholders comprised of disposal proceeds, operating cash flow and maintaining leverage at 2.5 times, the analyst said. 

About $750 million could be returned to shareholders from asset sales, Gordon said. The proposed plan has the potential to increase the company's leverage from 2.3 to 2.5x, assuming acquisitions do not deliver incremental EBITDA, Gordon said. 

"It appears that the company sees a widening valuation anomaly between its real estate assets and the wider lodging space, with the move geared to maximising shareholder value," according to Berenberg. 

The Price Action

At the time of writing, Hyatt Hotels shares were rising 1.14 percent to $69.99.

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Photo courtesy of Hyatt Hotels.