Hyatt Hotels' (H) Strategic Efforts To Aid Long-Term Growth

Hyatt Hotels Corporation (NYSE:H) is riding high on impressive earnings surprise history, solid brand portfolio, extensive international exposure and strong developmental pipeline. Backed by these strategic efforts, the stock has surged 40.8% in a year’s time, outperforming the industry’s increase of 20.9%. Yet, lingering global woes in key operating regions along with fluctuations in exchange rates raise concern. Let’s delve deeper.

Key Catalyst

Hyatt has delivered a positive earnings surprise in each of the trailing nine quarters. In first-quarter 2018, adjusted earnings of 33 cents per share surpassed the consensus estimate of 29 cents by 13.8%. In the trailing four quarters, the same outpaced the consensus mark by an average of 34.1%. Given the company’s strong brand recognition, efforts to enhance guest experience and increased focus on operational excellence, Hyatt is likely to perform well in the quarters ahead.

Additionally, the company intends to differentiate its brands from one another by providing distinct travel experiences. Hyatt is also consistently trying to expand its presence worldwide and has expansion plans in Asia-Pacific, Europe, Africa, Middle East and Latin America. Expansion in these markets should help the company gain market share in the hospitality industry, thus boosting business.

Meanwhile, the Zacks Rank #3 (Hold) company’s new signings across its brands globally have consistently outpaced its openings and this trend is expected to continue in 2018. In first-quarter 2018, Hyatt registered net room growth of 7.2% on a year-over-year basis, which marked the 12th successive quarter of growth above 6%. For 2018, Hyatt expects to grow units on a net rooms basis, by roughly 6% to 6.5%, reflecting 60 new hotel openings.

The Hyatt Place and Hyatt House brands allow to expand Hyatt’s presence globally in a bid to further strengthen its fast-growing select service category. The company strongly believes that the opportunity for properties, which offer selected services at a lower price than full-service hotels, is particularly compelling in certain markets including India, China and the Middle East. This is because there is a large and growing middle-class population in these markets along with a significant number of local business travelers.

Concerns

Hyatt has considerable international presence, which makes it vulnerable to the economic conditions. In the Middle East, political unrest, lower government spending, new hotel supply and a tough oil market continue to hurt tourism, which is concerning. Also, the slowdown in the Chinese economy might continue to hurt discretionary spending as well as travel. From a global RevPAR perspective, the company is expected to post a weaker performance in 2018 than 2017, given modest growth rates in the United States.

As Hyatt has outperformed the industry in a year’s time, the stock’s valuation looks quite stretched. The stock has a trailing 12-month P/E ratio of 60.42, which is just below the high level of 60.90 scaled in a year. On the contrary, the trailing 12-month P/E ratio for the industry and the S&P 500 is 30.67 and 20.04, respectively.

Key Picks

Some better-ranked stocks in the same space are Wingstop Inc. (NASDAQ:WING) , Dine Brands Global, Inc. (NYSE:DIN) and Denny's Corporation (NASDAQ:DENN) . While Wingstop sports a Zacks Rank #1 (Strong Buy), Dine Brands and Denny's carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Wingstop has an impressive long-term earnings growth rate of 19.5%.

Dine Brands Global reported better-than-expected earnings in the trailing four quarters, with an average beat of 7.8%.

Denny's reported better-than-expected earnings in the preceding two quarters.

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