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Hyatt Rides on Asset Recycling, Expansion & Loyalty Program

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Hyatt Rides on Asset Recycling, Expansion & Loyalty Program

In order to survive a competitive industry, Hyatt (H) banks on asset recycling and strong loyalty program to drive growth.

Hyatt Hotels Corporation’s H differentiated brand portfolio, strong expansion plans and acquisition strategies are the major growth drivers. It is currently one of the best-performing stocks in the hotel space.

Recently, Hyatt posted mixed results in the second quarter of 2018, wherein earnings surpassed the Zacks Consensus Estimate while revenues lagged the same. Adjusted earnings of 72 cents per share grew 41.2% year over year on higher EBITDA margins. Moreover, the company has delivered positive earnings surprise in each of the preceding 10 quarters. Given the company’s strong brand recognition, efforts to enhance guest experience and increased focus on operational excellence, it is likely to perform well in the quarters ahead.

Driven by such impressive earnings trend, shares of Hyatt have outperformed the industry in the past year. The stock has rallied 39.2% as compared with the industry’s collective growth of 6.9%.

Acquisition and Divestitures to Drive Growth

Hyatt is strongly invested in the strategies related to various acquisitions and divestitures, which can drive growth for the company. After acquiring the Miraval group in 2017, Hyatt made an investment in Oasis Collections and acquired Exhale. Recently, Hyatt acquired the 693-room Hyatt Regency Phoenix, AZ, for roughly $140 million, which was previously operated under a management agreement. These acquisitions are part of Hyatt’s ongoing asset recycling program. In an effort to strengthen its financial flexibility and focus more on core operation, the company is also focusing on the sale of assets. The sale of assets is helping Hyatt to grow through management and licensing arrangements, instead of direct ownership of selective assets. However, it continues to manage the properties post sale. Notably, a higher concentration of franchise fees reduces earnings volatility and provides more stable growth profile.

Relentless Expansion to Strengthen Brand Presence

Hyatt is consistently trying to expand its presence worldwide and has expansion plans in the Asia Pacific, Europe, Africa, Middle East and Latin America. Expansion in these markets should help the company gain market share in the hospitality industry, in turn, boosting business. Thus, an essential aspect of the company’s riveting growth potential is its strong brand presence, and continual expansion in higher growth and under-penetrated markets such as India, and China. Meanwhile, the company’s new signings across its brands, globally, have consistently outpaced its openings. This trend is expected to continue in 2018. In second-quarter 2018, Hyatt registered net room growth of 7.4% on a year-over-year basis, which marked the 13th successive quarter of recording growth above 6%. The company added 17 hotels to its portfolio during the quarter under review and its development pipeline grew roughly 10% compared with the prior-year quarter. For 2018, the company expects to grow units on a net room basis by roughly 6-6.5%, reflecting 60 hotel openings.

Loyalty Program to Counter Competition & Increase Occupancy

In order to survive the tough competition from hotel giants like Marriott MAR, Hilton HLT and Choice Hotels CHH, Hyatt is continuously devising newer ways to enhance guest experience and raise occupancy. Successful innovation has been a trademark of Hyatt, with a commitment to offer unique architectural design of hotels. Meanwhile, in 2017, the company launched a loyalty program, World of Hyatt, which replaced its Gold Passport loyalty program. Notably, World of Hyatt is a platform for guest engagement. The company is witnessing a higher level of guest satisfaction, owing to the enhancements. As of Dec 31, 2017, the loyalty program had over 10 million active members. During 2017, approximately 30% of total system-wide room nights were favored by the program.

Hyatt currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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