Is Hyatt Stock Still an Appealing Investment with a 50% Increase in the Past Year?

Is Hyatt Stock Still an Appealing Investment with a 50% Increase in the Past Year?

Hyatt stock has rallied by almost 22% since early 2024, outperforming the broader S&P 500 which remains up by about 10% over the same period. There are a couple of trends driving the recent price appreciation. Travel and leisure demand has remained robust, despite concerns about the global economy. Over Q4 2023, Hyatt saw its comparable system-wide revenue per available room increase by a solid 9.1% year-over-year, with the metric rising by 17% for the full year of 2023 driven by rising occupancy levels and higher average room rates. The company’s operations in Asia were the biggest drivers of growth, led by China, which eased its Covid-19-related travel restrictions. North America also remained strong, amid strong leisure travel demand and rising group bookings, due to a higher number of events and conferences. Hyatt’s near-term outlook is also pretty strong. The company is projecting that its systems-wide RevPAR could increase by 3% to 5% Adjusted EBITDA is expected to increase by 14% to 19% to a range of $1.175 billion to $1.225 billion for 2024.

Hyatt primarily makes money from fee-based revenue, licensing, and other services, allowing third-party owners and franchisees to use Hyatt’s brand and intellectual property. This asset-light strategy is helping the company expand quickly. In Q4 2023, Hyatt added 29 new hotels, with a total of 9,648 rooms and the company expects net room growth of 5.5% to 6% for 2024. Hyatt has also been increasingly focused on deal-making activity, with recent deals including the Mr & Mrs Smith booking platform, offering direct booking access to a select collection of boutique and luxury properties, and its 2021 deal for Apple Leisure Group, a luxury resort-management services, travel, and hospitality company. Hyatt previously estimated that it would derive over 80% of its earnings via fees by 2025.

Looking at a longer period, H stock has seen extremely strong gains of 115% from levels of $75 in early January 2021 to around $160 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. Admirably, H stock has outperformed the broader market in each of the last 3 years. Returns for the stock were 29% in 2021, -6% in 2022, and 44% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could H see a strong jump?

While the increasing pivot to fee-based businesses, a focus on more premium properties, and a strong and growing travel market should help Hyatt, we think the stock is slightly overvalued at current levels. At the current market price of about $159 per share, Hyatt trades at roughly 46x projected 2024 earnings, which is high versus peers. We value H stock at about $132 per share, which is about 16% below the current market price. See our analysis on Hyatt Valuation: Is H Stock Expensive Or Cheap? for more details on Hyatt’s valuation and how it compares with peers. For more information on Hyatt’s business model and revenue trends, check out our dashboard on Hyatt Revenue: How H Makes Money.

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