Hyatt Hotels Corporation H has been capitalizing on rising demand, new hotel openings and strategic acquisitions. Furthermore, its emphasis on both organic and inorganic growth, supported by loyalty programs and an asset-light business model, bodes well.
Shares of Hyatt have risen 19.7% in the year-to-date period compared with the Zacks Hotels and Motels industry's 26.5% growth. Although the company has underperformed the industry in the said period, strong momentum across all group customer segments will help to drive growth. Increased group bookings and robust recovery of business transient demand are expected to contribute to the company’s optimistic outlook. However, dismal leisure transient revenues and persistent issues in the Greater China market are a concern.
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Factors Acting in Favor of Hyatt
Continued Momentum in Business and Group Travel: Hyatt has been seeing strong momentum in business and group travel, which is contributing to positive performance in its revenue per available room (RevPAR). The recovery of business travel, particularly in urban markets, has been a key driver, with solid growth in group bookings and corporate accounts. In third-quarter 2024, Hyatt reported steady improvements in business transient revenues. System-wide comparable RevPAR increased 3% year over year, owing to improved business and group travel. The business transient customer segment experienced the strongest growth during the quarter, with revenues increasing approximately 16% on a year-over-year basis.
Group rooms revenues increased 6% year over year in the quarter, with solid results in both the United States and Europe. This solid performance in group and business travel contributed to RevPAR growth of 2.8% in the upper upscale brands. The company is optimistic about the outlook for business and group travel, with expectations for continued strength in these segments into 2025.
Global Expansion and Strategic Signing Initiatives: Hyatt has been driving global expansion through a strong pipeline of new hotel openings and strategic signings across key markets. In third-quarter 2024, the company added 16 new hotels, which included more than 2,589 rooms, marking a 4.3% increase in net room growth. This ongoing expansion is expected to boost growth through the remainder of 2024, supported by a robust pipeline of future hotel openings and conversions. Hyatt anticipates net room growth to increase in the range of 7.75% and 8.25% year over year (up from prior expectations of 5.5-6%) in 2024.
The company experienced strong signing activity in the United States and Greater China, particularly for its Hyatt Studios and UrCove by Hyatt brands. On Oct. 28, 2024, Hyatt announced a joint venture with Grupo Piñero to manage Bahia Principe hotels. This will add 23 resorts and more than 12,000 rooms to Hyatt’s inclusive collection, increasing its all-inclusive portfolio by 30%. This partnership expands Hyatt’s offerings in the 4.5-star category, filling a gap in its brand portfolio.
Strategic Acquisitions Driving Growth: Hyatt continues to strengthen its position through targeted acquisitions, enhancing its portfolio and expanding into key market segments. On Oct. 1, the company completed the acquisition of Standard International, which includes the Standard, StandardX and Bunkhouse brands, enhancing its position in the lifestyle segment. This acquisition added 22 hotels with approximately 2,000 rooms. It also contributed 10 executed agreements to the pipeline in the fourth quarter, totaling around 1,300 rooms. Additionally, more than 20 projects, including branded residences, are under development with signed agreements or letters of intent.
Optimizing Portfolio Through Asset-Light Strategy: Hyatt has been focusing on refining its asset-light strategy to streamline operations and improve financial flexibility. On Aug. 16, the company reached a significant milestone with the sale of Hyatt Regency Orlando and nearby land for $1.07 billion in gross proceeds. This completed the third asset disposition commitment announced in 2021. Over three years, the company generated $2.6 billion in gross proceeds at a 13.3x multiple, net of acquisitions.
The company plans to further reduce hotel ownership despite completing its third disposition goal. Hyatt is exploring additional hotel sales and expects to complete more transactions in 2025 and beyond. It expects to exceed an 80% asset-light earnings mix in 2025.
Hyatt Stock’s Estimate Movement Trends Upward
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for H’s 2024 earnings per share (EPS) has moved up to $3.89 from $3.87 in the past 30 days. This depicts that there is solid upside potential for the stock. The estimated figure indicates 52% year-over-year growth for 2024.
Risks for Hyatt Stock
Dismal Leisure Transient Revenues: The company has encountered some challenges in the leisure segment, impacting its performance during the quarter. In the third quarter of 2024, leisure transient revenues decreased approximately 4% year over year, due to weaker demand in the United States and Greater China. The company continues to face challenges from the aftermath of last year's wildfires in Maui, hurricane activity and an increase in international outbound travel.
Challenges in the Greater China Market: Softer domestic demand in China remains a concern for the company. In the third quarter of 2024, RevPAR in Greater China fell 7% year over year, primarily due to a decline in domestic travel after last year’s unusually high levels, especially among higher-income travelers. Despite a slight increase in international inbound travel, domestic travel dropped 9%. The stimulus measures enacted by the government in late September were still early in showing improved results.
Our Thoughts on Hyatt Stock
This Zacks Rank #3 (Hold) company is experiencing solid momentum in business and group travel, driving positive performance in its RevPAR. The global expansion strategy and strategic acquisitions are further enhancing its market position. However, the company faces challenges in the leisure segment, particularly due to weaker demand in key markets like the United States and Greater China. Despite these challenges, Hyatt's continued focus on growth through acquisitions, asset-light strategies and new hotel openings positions it for long-term success.
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