Tags: Hyatt | Hotels | dismal | H

Hyatt Hotels: Nice Properties, Dismal Finances

By    |   Friday, 30 Mar 2012 08:21 AM

Hyatt Hotels (H) is famous for top-quality, upscale properties. But the hotels are a bit nicer than the company’s finances at the moment, so be careful on the stock.

Hyatt has 483 hotels in 45 countries under nine brands, including Grand Hyatt, Park Hyatt, Hyatt Regency, and Hyatt Hotels. Travelers can count on first-class rooms and facilities at Hyatt properties.

Yet Hyatt’s profit margins and return on invested capital constitute the lowest among major global hotel operators, according to Morningstar, averaging 6.3 percent over the past five years.

Much of the reason for that poor performance is that, unlike most other hotel operators, Hyatt owns many of its properties. Indeed, Hyatt’s owned properties produced more than 75 percent of its cash flow in 2010. Owning properties is a disadvantage because it means Hyatt must pay for capital improvements and upkeep.

In addition, Hyatt is reliant on its U.S. holdings. Those hotels accounted for 79 percent of its revenue in 2010. So the next economic downturn in the United States could mean big trouble.

Valuation


Despite all those disadvantages, Hyatt trades at a premium to competitors based on enterprise value-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) multiples.

Hyatt only went public in November 2009, but over the past year its stock has lagged Morningstar’s average of lodging stocks. Hyatt shares produced a negative total return of 3.6 percent during that period, compared to a 1.8 percent dip for the average.

Among 22 analysts tracked by Thomson/First Call, 11 have a buy or strong buy rating on Hyatt stock, 10 have a hold rating, and one has a reduce rating.

The company’s profit totaled $52 million in the fourth quarter, reversing a $4 million loss from a year earlier. Revenue gained 8 percent to $990 million.

Hyatt next reports earnings May 17.

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2012-21-30
Friday, 30 Mar 2012 08:21 AM
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