Company Profile: Hyatt Hotels Corporation
I love staying in nice hotels on vacation so I am interested to profile Hyatt Hotels Corporation this week. I have stayed at a few Hyatt’s and there is one in my home city where I have attended many events. It is very nice and its spa is also worth trying. Luxury hotel properties continue to improve their offerings in an effort to compete, which benefits consumers, but it definitely comes with a price tag. Costs to operate are continually rising which means consumers end up paying more. That certainly seems to be my impression judging from the cost of high end hotel rooms in the last few years. Deals are hard to come by unless you are using a discount service such as Hotwire.com or Expedia.com. However, the number of very wealthy people continues to grow worldwide and these people are looking to spend their money on experiences like those offered at high end hotels and resorts.
Of course, there is always Airbnb which is a thorn in the side of most hotels and isn’t going away anytime soon. On that note, one final point, you need to check out PUBLIC in NYC. This hotel was created by the founder of the nightclub Studio 54 and is meant to be like Airbnb, but with hotel-like amenities! Touted as "luxury for all", rooms can be had for as low as $150 per night and costs are kept down by using technology to reduce the number of staff, i.e. no room service. It is meant to compete with Airbnb by providing a hotel experience at a much cheaper price.
· As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer. Also, I do not own Hyatt Hotels Corporation stock and am not affiliated with them in any manner.
What is the Hyatt Hotels Corporation (Hyatt)?
Hyatt is a 60-year-old Chicago based hotel and hospitality company whose portfolio contains 739 properties in 57 countries. It operates under various brands including Park Hyatt, Hyatt Regency, Hyatt Place and Hyatt Residence Club to name a few. It is competing in the luxury category of hotels of which there are many competitors including Four Seasons, Fairmont Hotels and Resorts, Ritz Carlton, Mandarin Oriental, etc. It expects to open at least 60 new hotels in 2017. Other relevant points to consider in assessing the Hyatt as an potential investment opportunity:
· Hyatt operates its hotels under three different models: franchising the hotel, allowing another entity to manage the hotel or Hyatt actually owning the hotel itself.
· The average daily rate for rooms ranges from $335 at an Andaz hotel to $131 at a lower end Hyatt Place;
· Share repurchasing occurred in 2016 and into 2017 (recall that a share repurchase by the corporation can mean that the owners think its stock is undervalued so may buy the stock back and sell it when the price is higher);
· Recently opened hotels in Changsha, Mexico City, Amsterdam, Bangkok, Edmonton, Riyadh Olaya, Sydney and Waikiki Beach;
· Purchased exhale, a spa and fitness company for approximately $16 million during the third quarter of 2017;
· Launched a new loyalty program called the World of Hyatt in March;
· In its November 2, 2017 news release to discuss its third quarter 2017 results, CEO, Mark Hoplamazian stated: “With the recent sale of two hotels and the completion of nearly $250 million of share repurchases in the third quarter, we are fulfilling our commitment to be a net seller of assets in 2017 and return substantial capital to shareholders. Looking ahead, we plan to extend this strategy to sell roughly $1.5 billion of real estate over the next three years, which we are confident will unlock additional shareholder value and drive the growth of our business."
· As of September 30, 2017, Hyatt had executed management or franchise contracts (recall above the three models under which the Hyatt operates) for approximately 315 hotels which will assist in its entry into new countries and previously under-represented markets; and
· It plans to move to more of a fee-driven business model which would mean income coming from entities managing or franchising the hotels thus allowing the Hyatt to sell a great deal of its real estate (approx. $1.5 billion) over the next three years.
All of this news appears positive as Hyatt is doing things to provide shareholder value in the long term.
What is Hyatt’s stock doing?
As at November 30, 2017, the numbers from our basic stock evaluation tools are as follows:
Share price: $72.36 USD
One share of Hyatt would cost you $72.36 USD. The price over the past 52 weeks has ranged from $50.21 to $73.04 USD.
Price to Earnings (P/E): 43.2
Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. The industry average here according to Morningstar is 40.8. To put this figure into perspective, the market is giving Hyatt a value equal to 43 years of its earnings so investors appear to be expecting this stock to grow as they are paying quite a bit per share for the earnings they currently are receiving. While 43.2 is high, it is on the industry average.
Dividend Yield: --
Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. Hyatt does not pay dividends at this time.
Earnings per Share (EPS): $1.67 TTM (Trailing Twelve Months, takes the numbers for the past twelve months to come to this figure)
This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential.
H shares earn $1.67 per share and this figure has been increasing, last year it was $1.52.
Revenue: $4,588 Million TTM (Trailing Twelve Months)
Increasing revenue is a good sign that the company is growing. If you look at past revenue figures, Hyatt’s Revenue figures have not grown by leaps and bounds in the last five years but have stayed steady with small increases.
Return on Equity (ROE): 5.7% (TTM)
ROE tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. H’s ROE last year was 5.17%.
Market Capitalization: $8.6 Billion
This indicates H is a large cap stock. Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies.
Net Profit Margin: 4.66% TTM (Trailing Twelve Months)
This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin. Here, H’s Net Profit Margin has varied year by year.
Cash Flow per Share: 1.04
Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position.
This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance. It is also wise to look at a company’s cash flow picture in the long term as that should take into account one time, large capital expenditures (money spent by a company to buy or maintain an asset like land, buildings or equipment, ie. “fixed assets”) that required large amounts of cash.
The Hyatt had $79 million in capital expenditures in the quarter ending September 2017 so this may explain in part the low cash flow per share value.
Price to Sales (P/S): 2.0
This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the industry average is 2.3 so Hyatt is right on the average.
Price to Book (P/B): 2.3
This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be leftover if the company went bankrupt for example. The industry average is 7.9 so Hyatt looks very attractive on this metric.
Price to Cash Flow (P/CF): 15.8
Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the industry average for this industry is 13.5 so H is right on the average.
This completes a basic evaluation of H. As always, there are tons of articles and discussions online about this stock and all stocks so they are also a good place to look at for further consideration. Hyatt looks like a fairly solid company that has weathered the ups and downs of the hospitality industry for over 60 years. Demand for luxury hotels does not appear to be abating as the wealthy continue to have the means to stay in such hotels. This leaves the less wealthy to consider other means such as Airbnb or the new PUBLIC for a small taste of luxury!
**Top Photo by Bill Anastas on Unsplash