Shares of Hyatt Hotels (NYSE: H) are little changed in the pre-market hours of Thursday morning, despite the company releasing its second quarter 2023 earnings results, which showcased the risks involved in operating within such a highly cyclical industry as lodging and leisure. However, the lack of reaction can be taken as a sign of optimism; it is now up to investors to decide if this outlook is justified.
Market sentiment compared to analyst ratings drives a wedge between the possible moves this stock can make, so understanding the developments during the quarter becomes a fundamental pillar to figuring out the best move. As the American consumer is switching preferences toward overseas vacationing, Hyatt management has made sure to accommodate these new trends and increase brand exposure in recent overseas locations.
Perhaps markets are seeing a higher potential upside in the stock, as the mere size of the company - along with its powerful free cash flow generation - allows it to quickly diversify its operations to pivot in the face of changing travel trends. Other economic dynamics, such as a rising Euro and lower oil prices, may boost future earnings for this stock, just in time for investors to jump in the wagon before it is booked out.
Don't Fight the Trend
Hyatt's stock chart will showcase a beautiful momentum story, as it has formed a steep uptrend channel for the past twelve months. Considering that the stock is little changed today, despite a 66% contraction in earnings per share (EPS) over the past year, investors can lean on the fact that markets are willing to provide needed support in the stock, further boosting future potential momentum.
As the image above will show, investors can time a more optimal potential purchase by awaiting the lower ends of the uptrend channel. Considering that markets are pushing the stock further and further away from the 200-day moving average (purple line), the reasonable assumption is that overall market sentiment is bullish for this company.
Quantitatively speaking, markets also place a higher perceived value and quality in the future earnings expected from Hyatt. Management guidance has pointed toward a revenue growth rate range of 14% to 16% and 6% net room growth for combined locations worldwide; these outlooks may be placing a clear growth path for markets to begin placing their bets.
Utilizing the forward price-to-earnings ratio, as opposed to a traditional P/E, investors can gain insight into the direct voting mechanism from markets when it comes to the future. Competitors like Hilton Worldwide (NYSE: HLT) and Marriot International (NASDAQ: MAR) are trading at inferior multiples of 22.4x and 22.2x, respectively.
Hyatt stock can be picked up today for a heightened 33.5x multiple, triggering some value investors to argue that this stock is now the more expensive alternative. Markets would say that there is a reason why the stock is 'expensive,' and that is because investors are willing to pay a premium for each dollar of future earnings in the stock; rightfully so.
Pivots to Profits
As other travel companies like JetBlue Airways (NASDAQ: JBLU) alert investors of fading demand, especially regarding U.S. domestic travel and vacationing, companies like Hyatt are sure to be affected by these same trends. Airlines have pointed to rising overseas travel, especially to European nations. Competent as always, Hyatt management has allocated resources to reflect these trends.
Hyatt has expanded its overall capacity by 29 properties in the Americas for 5,427 new rooms. While this may seem like a decent increase, it pales compared to the expansion initiatives seen amongst other regions. Asia saw a net of 33 new properties accruing as many as 7,880 new rooms for the company. Europe - the hub of American travel demand - saw 42 new properties for 6,810 additional rooms.
Considering that the Euro Dollar exchange rate is now at 1.09, keeping it at a cyclically compressed level, it is now cheaper for Americans to take their hard-earned dollars and purchase European goods and services, especially during more affordable travel. If the exchange rate rises to a normalized 1.25 or thereabouts, these trends will shift; until then, Hyatt's ads may host the Bella Ciao!
Management has repurchased as many as 969 thousand shares off the open market for a total allocation of $108 million. Insiders repurchasing their stock can be taken as the ultimate vote of confidence, suggesting that the stock is not only possibly undervalued but that the future outlooks from the inside are as bright as ever.