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Expansion Initiatives Support Hyatt (H) Stock, RevPAR Dismal

Hyatt (H) is benefiting from rise in leisure transient demand in the United States and Mainland China. Pandemic-related travel restrictions and contai...

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This story originally appeared on Zacks

Hyatt Hotels Corporation H is poised to benefit from expansion initiatives, hotel conversions and digital efforts. Also, focus on the loyalty program bodes well. However, decline in RevPAR from pre-pandemic levels is a headwind.



Let us delve into the factors that highlight why investors should hold on to the stock for the time being.

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Growth Catalysts

Hyatt continues to expand presence to boost growth. During the second quarter of 2021, the company opened 27 new hotels (or 4,302 rooms), which led to net rooms growth of 7.1% year over year. As of June 30, 2021, the company had executed management or franchise contracts for approximately 495 hotels (or 101,000 rooms) compared with 490 hotels (or 100,000 rooms) as of Mar 31, 2021. It is optimistic about full-service growth opportunities, comprising newbuilds and conversions globally. During the quarter, independent brands like Unbound Collection by Hyatt, JDB by Hyatt and Destination by Hyatt accounted for eight conversions in high barrier to entry markets including Los Angeles, Toronto, Beijing, Sweden and Spain.



As the economy is opening up, signs of improvement can be witnessed in the United States and Mainland China. The upside can be primarily attributed to rise in leisure transient demand, widespread vaccine availability and lenient travel restrictions. During second-quarter 2021, RevPAR in the regions came in at 80% of the pre-pandemic levels. Notable markets that contributed to increase in RevPAR include Europe, Southeast Asia and the Middle East. The company mentioned recovery in properties at Mexico and certain parts of the Caribbean on a year-over-year basis. Moreover, the company stated improvements in the business transient and group bookings for dense urban markets such as New York, Washington D.C., Chicago and San Francisco. It expects the momentum to continue, subject to successful vaccination rollouts as well as easing of travel restrictions. The company noted that group bookings for second-quarter 2022 are 5% higher than 2019 levels.



Furthermore, acquisition and divestitures have been key factors for Hyatt’s growth. During second-quarter 2021, the company benefitted from the integration of its acquired brands such as Two Roads Hospitality Alila, Thompson, JDV by Hyatt and Destination by Hyatt. Hotels in these brands have expanded 20% so far this year, with further growth anticipated at 30% (or more) by 2021 end.



Meanwhile, the company has been focusing on its loyalty program for enhanced guest engagement. During second-quarter 2021, the company announced collaboration with Built Rewards. The new rewards program offers access to millions of urban renters, thereby facilitating them with global points through rents. Given the best-in-class loyalty program and digital platform, the company’s portfolio of brands is resonating well. The company stated that revenues from co-brand credit card and hi.com improved significantly from 2019 levels.

Concerns

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Shares of Hyatt have dropped 1.5% so far this year against the industry’s 1.6% growth. Notably, the COVID-19 pandemic as well as related travel restrictions and other containment efforts has impacted the company significantly.  Emergence of new COVID-19 variants is likely to create volatility in demand. The company does not expect results to return to pre-COVID levels until business traveler and consumer confidence improve (associated with pandemic-related risks) and government and corporate restrictions on travel are fully lifted.



With travel restrictions and quarantines in place, Hyatt has been witnessing dismal RevPAR. In spite of sequential improvements in RevPAR, it is still lagging behind the pre-pandemic levels. During second-quarter 2021, the company’s system-wide RevPAR plunged 50% compared with 2019 levels. The downside was caused by the negative impact of the pandemic.

Zacks Rank

Hyatt — which shares space with Marriott International, Inc. MAR, Hilton Worldwide Holdings Inc. HLT and Choice Hotels International, Inc. CHH in the Zacks Hotels and Motels industry — has a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



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