Market Overview

Why It's Time To Consider Adding Hyatt Stock To Your Portfolio


Hyatt Hotels Corporation H, which is currently one of the best-performing stocks in the hotel space, has strong fundamentals. Robust share price appreciation along with a Zacks Rank #1 (Strong Buy) makes the stock a lucrative pick for your portfolio now.

Shares of Hyatt have outperformed its industry in the past three months. The stock has rallied 28.3% as compared with the industry's gain of 16.6%.

Moreover, upward revision in earnings estimates for 2018 reflects analysts' unwavering confidence in the company. Over the past two months, the year's earnings estimates inched up 6.5%. The company also delivered positive earnings surprises in each of the trailing four quarters, the average beat being 81.63%.

Per our VGM Score, which identifies the most attractive value, growth and momentum characteristics, Hyatt has a Momentum Score of B. This reflects the appropriate time to invest in the stock.

Strong Brand & Expansion Plans Drive Market Share

Being a widely recognized hotelier, Hyatt continues to gain global market share in managed and franchised hotels by providing innovative, exceptional and personalized services to guests. The company, with 38,000 associates, has a collective inventory of nearly 130,000 places to stay across 56 countries. Hyatt is also consistently trying to expand its presence worldwide and has expansion plans in Asia-Pacific, Europe, Africa, Middle East and Latin America.

In fact, the company recently opened the first Hyatt Place hotel in Hyderabad, India. This has helped it expand its fast-growing select service category (that offers services at affordable prices) in a country which has a growing middle-class population and a significant number of local business travelers.

Meanwhile, across the globe and its brands, the company's latest deals have continually driven its openings. In fact, the company has seen net room growth between 6% and 7% in the last ten quarters.

Cash Position Strong on Franchise Business & Assets Sale

As part of its efforts to expand select-service presence, Hyatt continues to construct franchised properties. It is also converting and renovating non-Hyatt properties, and in certain cases, developing new managed properties. This will provide the company with a more stable growth profile. A higher concentration of franchise fees also reduces earnings volatility.

Additionally, in order to gain financial flexibility and focus more on core operations, the company is carrying out asset sales. Recently, Hyatt sold its 550-rommed Hyatt Regency Monterey Hotel and Spa for approximately $60 million. This resulted in a pre-tax gain of approximately $17 million. This property was one of the six asset sales planned by the company. Notably, the property will be under a long-term franchise agreement within the Hyatt system.

The sale of assets is helping the company grow through management and licensing arrangements, instead of direct ownership of selective assets. However, Hyatt continues to manage the properties post sale. This allows the company to protect its current liabilities with a combination of cash and liquid assets.

Enhancing Shareholders' Value

Recently, Hyatt's board approved the repurchase of up to an additional $750 million shares. Including the latest authorization, the company has approximately $864 million shares left to be repurchased under its existing authorization. It bought back shares worth $700 million between Jan 1 and Nov 15, 2017.

Notably, the company delivered a return on equity (ROE) of 6.13% in the trailing 12 months as against the industry's loss of 19%. This supports its growth potential and indicates that the company reinvests more efficiently compared to peers.

However, Hyatt is not rewarding shareholders at the expense of business expansion. It has a solid cash position to explore profitable avenues. The company continues to focus on investing in brand and sales building.

Acquisitions Drive Traffic & Revenues

Last year, Hyatt acquired Miraval Group, the renowned provider of wellness and mindfulness experiences and included Miraval Life in Balance Spa brand. As part of the transaction, it added three destination wellness resort properties in Tucson, Austin and Lenox to its portfolio and is making good progress with the redevelopment and expansion of the resorts. Though the Miraval operations are likely to contribute meaningfully to Hyatt's overall earnings 2019 onward, the company stated that the initial results have been positive.

Moreover, the company is increasing its focus on private accommodations, another fast-growing travel segment, which has the potential to extend the Hyatt brand beyond traditional hotel space and is a fantastic fit to the Hyatt portfolio and its brand positioning.

Thus, Hyatt made a strategic investment in Oasis Collections, a curated marketplace that blends the value and authenticity of private homes with quality service and exceptional amenities. The company believes that this category has the potential to serve new-stay occasions for its customers and add meaningfully to top-line growth.

Notably, in third-quarter 2017, Hyatt acquired Exhale for $16 million and the company expects to gain significantly from the same. The company intends to continue exploring new undertakings apart from traditional hotel growth in order to evolve with changing taste and preference of guests. The increasing traffic trend will eventually help the company drive revenues. We note that the Zacks Consensus Estimate for 2018 sales projects growth of 1.7%.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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