The hospitality industry has been among the worst hit by the coronavirus pandemic, with many people being forced to postpone their vacations and dramatically change their daily routine. People are eager to travel again, but the pandemic has not abated and has even intensified in recent months. However, it is hoped that this year the pandemic will finally be brought under control and several new vaccines have already been approved for distribution. The advent of vaccines, along with an improved economy, should help hoteliers like Hyatt Hotels (NYSE: H) begin their journey to full “recovery.”
Hyatt lost ground to its rivals in 2020 when the stock price fell 17% year over year. But at its current low valuation, it could be an attractive buy ahead of the recovery in the tourism industry. Let’s take a closer look at what factors can make Hyatt stock a great buy.
Hyatt performed poorly in 2020, mainly because its properties are heavily biased towards the high-end and luxury market segments. These segments faced much lower occupancy and income per vacancy (or RevPAR) than the middle class. In addition, Hyatt hotels are predominantly located in places where things did not fare well in 2020 – in cities, resorts and airports.
CEO Mark Khoplamazyan spoke about the profit and loss in the third quarter:
We continue to see an almost complete lack of demand. While the impact of the pandemic in the second quarter of 2021 is not yet significant, we are starting to see limitations and believe that we may experience additional difficulties in the coming months. The recovery in demand is largely due to confidence in widespread availability of vaccines, effective treatments and better solutions for rapid testing.
In comparison, most of Hyatt’s competitors, such as Marriott, Hilton, Wyndham, InterContinental, and Choice Hotels, have a wider range of rooms and properties (different classes). As such, they had more diversified revenue streams and were able to generate more revenue from the more efficient segments of the hospitality industry.
However, there is some reason for optimism. Two of the company’s newest brands, Hyatt Place and Hyatt House, performed well over other brands, with an average occupancy rate of 40%. This is higher than the industry average, and RevPAR is only slightly down from last year.
In addition, the company continues to expand. Hyatt opened 27 new hotels in the third quarter, a record. In addition, the company is expanding its presence in Europe with plans to open 20 new hotels across the continent, as well as 12 new hotels in the United States.
Hyatt maintained high liquidity to support its business by investing in new opportunities if difficult times continue (probably a couple more quarters). It has $ 1.8 billion in cash and $ 3.6 billion in liquidity available (and that’s not counting the proceeds from the $ 750 million short-term bond issue in the third quarter).
When the tourism market starts to grow again, Hyatt needs to be in a good position to take off. A surge in pent-up demand for meetings, business travel and luxury real estate will give it an edge over its competitors (as RevPAR and average daily rates should outpace its more diversified competitors).
The situation is very uncertain right now, and the share price may still decline over the next few difficult quarters. I love its long-term perspective and would keep the stocks in my portfolio (if they were there at the moment), but refrain from buying in the next few quarters to buy when the situation normalizes.