Hyatt Hotels Corporation: H Stock Is Just Starting to Flex Its Muscle

Hyatt Hotels Corporation (NYSE:H) delivered fairly strong results for Q2, but the market sold the stock off slightly anyway. Is there any reason for the selloff? For that, we have to check the numbers. Let’s do that, because H stock is also a huge player in the hotel space and its results will tell us a lot about the hospitality sector.

Hyatt Hotels Corporation: H Stock Delivers More Than Room ServiceNet income for Hyatt increased 67% to $67 million, and that came on comparable revenue per available room increases of 2.3%. Here in the U.S., comp RevPAR for the company increased 4.2%, with select service RevPAR up a generous 6.9%.

These increases were the result of growth in both hotel and room growth of 8% and 6% for H stock.

These are respectable numbers for Hyatt and, on the surface, they represent solid traction in the hospitality industry. Let’s keep going.

All You Need to Know About H Stock

Hyatt is also a management and franchise company, so it has a diversified revenue base. Fee revenue was up 2.7% to $115 million. Franchise fees exploded 23% to $27 million as Hyatt added both new and converted hotels to their franchise system. Adjusted EBITDA for this division increased 8.5%, and that was the result of a 3.4% increase in ADR.

Occupancy, however, was flat. So, that’s notable — there was no increase in travelers at franchised and managed operations, but those who did stay at the hotels paid slightly more.

Hyatt did see more occupancy (0.7%) for group rooms. Full service hotels did also, by 1.7%.

China, however, was soft. So was Asia in general, and this seems to bolster the broader observation that China’s “booming economy” isn’t booming so much.

However, that hasn’t stopped Hyatt from opening tons of hotels. Clearly, there remains strong demand. Hyatt opened 15 hotels in the quarter and expects to open 60 over the next year. Think about that. Sixty hotels doesn’t seem like much in the aggregate, yet the implication is that world markets can tolerate another 6,000 to 8,000 rooms. Demand is strong enough to support that addition.

Hyatt is also engaging in smart moves within its portfolio. It is building its Hyatt Unbound Collection globally, and it added a hotel in Miami Beach to that collection. It sold a hotel for $250 million, almost all of which was cash that went straight into the bank, but still will manage that hotel going forward; therefore, it will continue to generate revenue from it.

It paid off all $250 million of its 3.875% senior notes, leaving it with total debt of only $1.5 billion. It is loaded with cash — $691 million in cash and short-term investments. Thus, it paves the way for more strategic acquisitions and rolling out new hotels. It also plans to spend a lot of money on equity investments in joint ventures, debt investments and capital expenditures.

Yet the sole reason H stock appears to have sold off was a change in guidance for RevPAR — 2% to 3%, down from 3% to 5%.

Hyatt stock is not a real estate investment trust, so it isn’t required to deliver dividends, and it doesn’t. Perhaps that’s one reason it has lagged compared to many peers. Nevertheless, Hyatt seems like a robust operation, and H stock should have upside from here.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities.

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