Over Q2 2023, Hyatt saw its comparable system-wide revenue per available room increase by a solid 15% year-over-year, driven by rising occupancy levels and higher average room rates. The company’s operations in Asia were the biggest drivers of growth, led by China, which eased its Covid-19-related travel restrictions late last year. The North American business also saw revenue grow by about 5%, led by strong leisure travel demand, as people continue to prioritize spending on experiences over goods. Business travel demand has also been strong with the large convention hotels also seeing a rebound. Overall, Hyatt saw its adjusted earnings for Q2 2023 rise to $$0.82 per share, compared to $0.46 in the year-ago quarter.
Notably, H stock had a Sharpe Ratio of 0.5 since early 2017, which is lower than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
Besides strong recent earnings, markets have also taken positively to the company’s latest deal-making activity to expand its portfolio. For instance, the company purchased the Apple Leisure group - a company focused on vacation packages, resort management services, and distribution solutions - in 2021. The company also closed a deal to buy Dream Hotel Group’s lifestyle hotel brand and management platform. Investors appear to like these deals considering that they are quite asset-light, focus largely on premium properties, and have fee-based business models. Hyatt estimates that it will derive over 80% of its earnings from fees by 2025.
So is Hyatt stock fairly valued at the moment? At the current market price of about $112 per share, Hyatt trades at roughly 43x projected 2023 earnings, which is relatively high versus peers. However, the company’s increasing pivot to fee-based businesses and a strong and growing travel market should help the company justify its valuation. We value H stock at about $120 per share, which is slightly ahead of the current market price. See our analysis on Hyatt Valuation: Is H Stock Expensive Or Cheap? for more details on Hyatt’s valuation and how it compares with peers. For more information on Hyatt’s business model and revenue trends, check out our dashboard on Hyatt Revenue: How H Makes Money.