Hyatt (H) Strong On Expansion & Miraval Buyout, Risks Stay

On Aug 25, we issued an updated research report on Hyatt Hotels Corporation (NYSE:H) .

The company’s strong differentiated brand portfolio and offering of innovative and exceptional personalized service have helped it gain traction globally through both its managed and franchised hotels. As of Jun 30, 2017, the company's portfolio included 731 properties in 56 countries, operating under 13 premier brands.

Meanwhile, shares of Hyatt have outperformed the industry year to date. The shares of the company increased 4.6% as compared with the industry’s gain of 1.2%.

Additionally, the company’s earnings estimates have moved north in the current year, reflecting analyst optimism. Over the past month, current and next earnings estimates have gone up 10.2% and 6%, respectively. Moreover, Hyatt’s reported earnings have beaten the consensus estimate in the four trailing quarters with an average surprise of 85.36%.

Key Growth Drivers

The company’s strong developmental pipeline, consistent expansion plans, extensive international exposure and efforts to grow the Hyatt brand beyond traditional hotel stays are major growth drivers.

Notably, in addition to domestic lands, Hyatt is consistently trying to expand its presence in the Asia-Pacific, Europe, Africa, Middle East and Latin America regions. Expansion in these lucrative markets should help the company gain traction in the hospitality industry.

Interestingly, the company has experienced net room growth between 6% and 7% over nine consecutive quarters. With roughly 60 hotel additions expected, 2017 is set be another year of record openings.

Also, the company continues to rapidly expand the Hyatt Place and Hyatt House brands globally, reflecting its robust momentum in the fast-growing select service category.

Meanwhile, the acquisition of Miraval in January 2017 has extended Hyatt’s brand beyond traditional hotel stays into a swiftly growing space, namely, wellness, which goes well with high-end travelers. Though Miraval’s operations are likely to contribute meaningfully to Hyatt's overall earnings starting 2019, the initial response has been positive as well.

Taking a cue from the Miraval acquisition, the company is increasingly focusing on private accommodations, another fast-growing travel segment. Hyatt believes that this category has the potential to add meaningfully to growth over time.

Hyatt also intends to continue exploring new avenues apart from traditional hotel in order to evolve with changing tastes and preferences of guests.

Meanwhile, the company is continuously devising newer plans to enhance guest experience and raise occupancy in order to survive in a tough economic environment. In first-quarter 2017, Hyatt launched a loyalty program World of Hyatt — a platform for guest engagement. The company expects the program to attract customers and aid in sustaining its market share gains.

Challenges

Macroeconomic concerns in several international markets might spell trouble for the company. In the Middle East, political unrest, lower government spending, new hotels and a tough oil market continue to hurt tourism. Additionally, the slowdown in the Chinese economy might continue to dent discretionary spending as well as travel.

Meanwhile, in Europe, economic/political conditions are expected to be challenging after the U.K.’s exit from the 28-member economic bloc. Recent terror assaults in key European cities have also affected tourism. We note that this might limit Hyatt’s business growth, given its considerable presence in Europe.

Given its significant international presence, Hyatt remains highly vulnerable to fluctuations in exchange rates, like other hotel companies including Marriott International, Inc. (NASDAQ:MAR) , Hilton Worldwide Holdings (NYSE:H) and Wyndham Worldwide Corporation (NYSE:WYN) . In fact, the company has been witnessing a decline in international inbound travel owing to a stronger dollar.

Hyatt currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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