Hyatt's (H) Strategic Efforts Bode Well: Should You Hold?

Solid brand portfolio, expansion plans, innovative and exceptional personalized services for guests as well as remodeled loyalty program bode well for Hyatt Hotels Corporation (NYSE:H) . Nonetheless, dismal Owned and Leased Hotels performance over the past few quarters is a major concern. In the past six months, shares of Hyatt have gained 10.7% compared with the industry’s 19% rally. Let’s delve deeper.

Hidden Catalysts

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

Apart from these, the company has announced further expansion plans into diverse international markets including Australia, Brazil, Germany, the United Kingdom, Indonesia, Japan, Mexico, Saudi Arabia, Singapore, Thailand, the Netherlands and others.

By the end of 2020, Hyatt announced plans to open 21 luxury hotels and resorts in the Asia-Pacific region. It plans to carry out these expansions through seven Park Hyatt branded properties, six Grand Hyatt and six Andaz brands, and two Alila branded resorts. The planned expansion will boost Hyatt’s Asia-Pacific luxury portfolio by more than 25%. The move not only underscores the company’s relentless focus on expansion but is also the hotelier’s way of countering growing competition from the likes of Marriott (NASDAQ:MAR) , Hilton (NYSE:H) and Choice Hotels (NYSE:H) .

In order to survive in a tough economic environment, Hyatt is continuously devising newer ways to enhance guest experience and raise occupancy. In fact, successful innovation has been a trademark of Hyatt, with a commitment toward impactful architectural design of hotels in both the large-scale convention and smaller leisure markets. This Zacks Rank #3 (Hold) company also has a creative approach toward food and beverage at its hotels worldwide, and created profitable and popular venues that build and enhance demand for its hotel properties. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meanwhile, in 2017, the company launched a new loyalty program, World of Hyatt, which replaced its Gold Passport loyalty program. Notably, World of Hyatt is a platform for guest engagement. The company is witnessing a higher level of guest satisfaction, following the introduction of this particular program.

Concerns

Hyatt has been witnessing sales decline at the Owned and Leased Hotels segment for quite some time now. In first-quarter 2019, sales at this division declined 9.6%, following a 10.9% decrease in the preceding quarter. Also, adjusted EBITDA decreased 10% in the first quarter. At constant currency, the same declined 9.3% due to transaction activities.

We believe that the ongoing weakness in the segment is due to the company’s continual asset recycling. It is to be noted that Hyatt has a strategy of asset sales that will strengthen its management and licensing arrangements instead of direct ownership of selective assets.

Also, the company’s asset sales are outnumbering its asset possessions through new mergers. Although this may increase the company’s franchise fees and reduce earnings volatility in the long run, short-term revenues are likely to be affected.

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