The concept of the company Hyatt Hotels CorporationNYSE:H) is a hospitality company based in Chicago, Illinois that specializes in luxury and business hotels, resorts, and resorts.
To date, Hyatt maintains 1,263 hotels worldwide, with a large presence in the US, Europe, India, and China.
Through these transactions, Hyatt recorded Q1 revenue of $1.68bn- an increase of 31.35% YoY- along with revenues of $58.00mn- an increase of 179.45%- and free cash flow of $195.00mn, an increase of 42.34% largely driven by an increase in operating expenses.
At the core of Hyatt’s growth has been its three core strategies, which emphasize greater efficiency and profitability from its core business, integration of all company segments, and a strategic approach that supports capital returns and M&A with shareholders. and repurchasing opportunities.
On a smaller scale, the company aims to do that by developing a corporate culture for employee success and retention, supporting superior customer experiences, supporting operational excellence, and product growth and margin growth.
Strong growth of Hyatt’s organic and inorganic footprint. combined with the company’s strong expansion in performance, macro tailwinds, and overall undervaluation leads me to rate Hyatt as a ‘buy’.
Valuation & Financials
During the TTM period, Hyatt’s stock – up 58.47% – outperformed both the NASDAQ’s Benchmark Hotels & Motels Index – up 26.99% – and the broader market, as represented by the S&P 500 (SPY) – up 18.91%.
Above all, the performance of Hyatt and hotels can be attributed to the main theme of the recovery of COVID-19, mainly mentioned by the reopening of the economy in China.
I believe that Hyatt has beaten all other hospitality companies mainly because of its scale, Hyatt’s evolution to be more important than other companies, and the growth of the portfolio through rapid M&A of struggling companies or divestment.
Due to the COVID-19 pandemic and the challenges ahead, the hospitality industry has become more integrated than ever. Therefore, there are still few mid-sized companies, which are directly comparable to Hyatt. These companies include entertainment, Paradise, Nevada-based MGM Resorts International (MGM), InterContinental Hotels Group (IHG), a diversified British hospitality company, New Jersey-based hotel and motel company, Wyndham Hotels & Resorts (WH), and owner of Quality Inn, Choice Hotels International (CHH).
As shown above, Hyatt experienced the second-best annual cost among its peers, resulting in its worst quarterly performance. Despite the large growth, however, in terms of multiples and considering the size of the company, Hyatt still has room for growth.
For example, Hyatt maintains the second lowest P/S ratio, along with the lowest P/B ratio. Coupled with the highest BV/share, this reflects Hyatt’s commitment to high quality products and a strong safety net.
This perspective is enhanced by Hyatt’s peerless debt/equity portfolio that supports returns and long-term capital growth.
The stated strategy of dynamic growth has enabled Hyatt to experience an increase in rooms, premiums, and loyalty of members, achieving prosperity.
Led by Hyatt’s $2bn in share repurchases combined with dividends over the next 5Y, investors can expect attractive returns.
Calculate the cost
According to my low-cost analysis, in fact, the current price of Hyatt is $ 144.62, which means that, at its current price of $ 118.98, the stock is cheap by 18%.
My DCF model, calculated over 5 years with no permanent growth, assumes an interest rate of 9%, balancing Hyatt’s debt cap with high risk due to fundamental uncertainty. In addition, download a historical 5Y growth rate of 18.96%, and an estimated annual growth rate of 10%. The revenue I expect will be driven by continued M&A, consolidated growth in various areas, and in developing economies.
The relative value of the Alpha Spread supports my no-value proposition, estimating a downside of 8%, implying a fair value of $129.01.
Therefore, comparing my NPV calculation with the Alpha Spread, Hyatt’s fair value should be $136.82, and the stock is undervalued by ~13%.
Hyatt’s Excellent Track Record Enables Parallel Scale & Margin Growth
As previously mentioned, Hyatt has prioritized aggressive growth above all else, through reinvestment and expansion of brand and divisional operations as well as horizontal M&A activities. Through this, Hyatt expects to grow FY2022 FCF from $473mn to ~$750mn in FY2025, accompanied by the addition of 250+ hotels and increased revenue.
This is also emphasized by Hyatt’s integrated approach to combining brand and access platforms, all of which feed into its ‘World of Hyatt’ mission, seeking a reliable loyalty program along with data collection and analysis of cost-effective pricing and customer satisfaction. For example, the purchase of the Dream Hotel Group or Miraval, which is very different from the Hyatt brand, allows for a larger area and different segments, which gives consumers more choice and encourages greater purchases in the ‘Hyatt World’ way.
All of this is supported by the tailwinds of the company’s products, with fewer hotels contributing to growth, a younger population and a more affluent population becoming more informed, the rapid growth of travel in the APAC region, the greater appeal of all Hyatt products, and the cheaper conversion rate of independent hotels, combined with growth and growth accordingly.
The Wall Street Consolidation
Analysts strongly support my positive view of Hyatt, estimating a 1Y average price of $128.42, an increase of 7.06%.
Even at a low price of $112.00—6.63% down—analysts see Hyatt as well-protected, especially being conservative relative to the volatility of its peers.
I believe these sentiments reflect investor reaction to hotel prices and hospitality as a whole, and I believe the market is overreacting to the long-term stress from the hurricanes.
Dangers & Difficulties
Demanding Side Jams Stay Stable With High Prices & Highs
Although COVID-19 has gone a long way in reducing demand for hospitality, the challenges of rising prices and rising interest rates have reduced the purchasing power of consumers and Hyatt’s ability to maintain high rates. Further reductions would require Hyatt to reduce its aggressive growth and lower average profitability and profitability.
Aggressive Growth Causes Legal Complexity & Decreased Focus
As I mentioned earlier, Hyatt is still in the top tier, which means the company is aggressively growing in the hospitality industry while expanding its portfolio. However, this also means that Hyatt is aware of the subsequent cost increases from various regional management systems that may result in lower profits due to Hyatt’s inability to focus on key offerings, which may hinder expansion.
Going forward, Hyatt continues to grow its portfolio and share through aggressive and M&A-driven growth, which supports long-term value returns and growth.