Hyatt Hotels Corporation (H – Free Report) is benefiting from strong transient leisure demand, the integration of Apple Leisure Group and the asset disposal commitment. This and the focus on asset-light transactions bode well.
Shares of Hyatt are up 12.4% over the past year, compared to an 8.8% decline in the sector. Price performance was supported by a strong history of earnings surprises. Hyatt’s earnings have exceeded Zacks’ consensus estimate in three of the past four quarters. Earnings estimates for the full year of 2023 have risen 36% in the past 60 days. This positive trend signifies bullish sentiments among analysts and justifies the company’s Zacks No. 2 (buy) ranking. This indicates strong fundamentals and near-term outperformance expectations. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Main drivers of growth
Hyatt continues to see a robust recovery in the third quarter of 2022. The rise can be attributed to increased demand for transient leisure, easing travel restrictions and increased airline capacity . During the third quarter, leisure passenger revenues exceeded 2019 levels by 20% on a system-wide comparable basis. Given the continued strength in leisure travel demand, the favorable pricing environment and air travel activity, the company is optimistic that demand growth will continue for the remainder of 2022 and the first quarter of 2023.
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Increased focus on the auspicious Apple Leisure Group integration. During the third quarter, the company delivered strong segment performance driven by strong package net RevPAR, increased ALG’s Unlimited Vacation Club membership contracts (approximately 9,200), employee departures ‘guests (about 682,000) and high unit prices. During the quarter, total net package revenue increased 91% over 2019 levels. The increase was supported by significant net room growth, driven by ALG’s expansion in Europe and growth organic in the Americas. In addition, strong demand for leisure destinations, increased air transport capacity and a favorable pricing environment added to the positive elements. During the third quarter, the ALG segment contributed $363 million to the company’s total revenue. Given distribution capabilities with end-to-end booking process and strong operational execution, integrated experience (with AMR and UVC program) and destination management services, the company is optimistic about ALG’s performance in 2022.
The focus on asset-light deals to expand presence in key markets and service platforms bodes well. During the third quarter, the company announced the signing of agreements to manage Miravals built or developed by third parties globally in the United States, the Middle East and Europe. During the third quarter, the company announced a collaboration with Lindner Hotels to strengthen its presence in Europe. With an expanded footprint of 15 new markets, the initiative includes integrating 30 hotels (and 5,500 rooms) into the GDB by Hyatt brand. The company said the majority of hotels are expected to join its system by the end of 2022. The company anticipates the initiative to increase its room count in Europe by nearly 25,000 rooms. That aside, the company announced the addition of five resorts in Bulgaria under ALG Brands. The company plans to open the resorts in 2023. The company announced a joint venture with Kiraku to launch Atona (a new luxury hotel brand of modern-style hot spring ryokans) in Japan. The initiative aims to strengthen the company’s luxury footprint.
During the third quarter of 2022, the company made significant progress on its $2.0 billion asset disposal commitment. The company has entered into asset sale agreements (valued at $721 million) related to its owned and leased portfolio. Properties include Hyatt Regency Greenwich (in Connecticut) and Hyatt Regency Mainz (Germany). On August 3, the company entered into an agreement with an unrelated third party to acquire the Irvine Hotel (for approximately $135 million). The company expects to fulfill a $2 billion divestiture commitment by the end of 2024. With an increased focus on improving the customer experience, initiatives and a strong customer base should pave the way for further solid management expense streams over the next few periods.
Other Key Choices
Some other top-ranked stocks in the Zacks Consumer Discretionary sector are Monarch Casino & Resort, Inc. (MCRI – free report), Hilton Grand Vacations Inc. (heavyweight – free report) and Crocs, Inc. (CROSS – free report).
Monarch Casino sports a No. 1 Zacks rank. MCRI has a four-quarter earnings surprise of 9.1% on average. The stock has gained 17.3% over the past year.
Zacks consensus estimate for MCRI’s 2022 sales and earnings per share (EPS) indicate growth of 21.1% and 29.2%, respectively, from reported levels for the time of year former.
Hilton Grand Vacations sports a No. 1 Zacks rank. HGV has a trailing four-quarter earnings surprise of 652.3%, on average. The stock is down 18.6% over the past year.
Zacks consensus estimate for HGV’s current year sales and EPS indicate an increase of 63.8% and 60.9%, respectively, over reported levels in the prior year period .
Crocs currently has a #2 Zacks rank. CROX has a long-term earnings growth rate of 15%. Crocs shares have plunged 39.2% over the past year.
The Zacks consensus estimate for CROX sales and EPS in 2022 indicates an increase of 51.5% and 23.7%, respectively, from prior year period levels.
