On Monday, Morgan Stanley adjusted its stance on Hyatt Hotels Corporation (NYSE:H), downgrading the stock from Overweight to Equalweight, albeit with an increased price target of $156, up from the previous target of $149.
The adjustment follows Hyatt's fourth quarter performance, which was positively received due to structural simplifications and a shift towards an asset-light model, alongside substantial free cash flow (FCF) per share growth.
The report acknowledged Hyatt's recent success, noting a 30% increase in the company's stock over the past three months, outperforming the S&P 500's 12% gain and the lodging sector's average of 16%.
This rally has led to a valuation re-rating, with Hyatt now trading at 13.3 times its 2024 estimated enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), compared to its pre-pandemic historical average of 11.0 times next twelve months (NTM) EBITDA.
Despite the positive outlook on Hyatt's strategic moves and the resulting financial performance, Morgan Stanley suggests that the current stock price reflects a more balanced risk-reward scenario.
The firm's revised 12-month price target of $156 implies a modest 1% downside, contrasting with the significant stock price appreciation since the beginning of 2023. Since January 1, 2023, Hyatt shares have surged 73%, compared to a 33% increase in Morgan Stanley's lodging coverage and a 34% rise in the S&P 500.
The update from Morgan Stanley comes after a period of notable growth for Hyatt, with the company's strategic initiatives resonating with investors and leading to a robust uptick in its stock price. The revised price target suggests that while the firm recognizes the progress Hyatt has made, it also sees limited room for further stock price appreciation in the near term.
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