Travel stocks such as Hyatt Hotels (NYSE: H) were keenly affected by the novel coronavirus. Investors will get a sense of just how badly some hotel chains fared when Hyatt reports earnings after the bell on August 3.
The report is expected to be awful. Hyatt is expected to report negative earnings per share of 1.38 on revenue of $598.11 million. It doesn’t really make any sense to consider what the stock is doing relative to last quarter or on a year-over-year basis. The only question for the company will be what its forward guidance looks like.
The virus remains the big unknown
Most investors are beginning to understand that the race for a vaccine isn’t like turning a light switch from off to on. Once a vaccine is in place, and we all hope that is soon, there will be a ramp-up period until a vaccine is available at the scale that is needed.
But the larger question for hotel chains like Hyatt is when a vaccine will be available. And it appears more likely that Hyatt will be looking at rough business for the remainder of 2020.
Hyatt stock is up since March
If there’s any good news for investors to consider it’s that Hyatt stock has climbed over 30% since falling to a low of $36.56 on March 18. Part of that is due to a resurgence in China.
In June, Hyatt CEO Mark Hoplamazian said in an interview with Fast Company that prior to the second outbreak in Beijing, the company was realizing over 50% occupancy in its hotels throughout China. However, Hoplamazian was quick to comment that part of that was due to China’s extensive contact tracing protocols that are already in place.
Hyatt was a strong performer prior to the pandemic. And analysts are giving H stock a price target of over $54. This suggests that Hyatt may have longer to run. By contrast, Hilton (NYSE: HLT) looks like it already has reached its 12-month price target of $75.
But there’s still a lot of bad to digest
That being said, H stock is still down over 47% in 2020. In May, the company suspended its dividend and share buyback program. This was in addition to announcing that it was laying off 1,300 workers and cut pay for senior management, board members, and all employees in the company’s corporate offices.
And the company still has a lot to work through this year. Industry experts project that revenue per available room will decline by approximately 51% for 2020.
Will luxury hotels benefit from the pandemic?
Prior to the pandemic, there was a noticeable shift in consumer habits as Airbnb properties were capturing the imagination of customers. And one of the reasons for this was, ironically, the lack of confidence that guests had felt with the housekeeping standards at hotels.
But as Hoplamazian explains, luxury chains may benefit when consumers begin to travel again. Hoplamazian explained, “There’s definitely going to be a short-term bias toward [hotel] brands [over rent-from-owner experiences]. Just looking at the guest experience, the question is: How do you implement cleaning regimens and safety protocols consistently across a diverse selection of offerings? With a marketplace platform [like Airbnb], I just don’t understand how the consistency and assuredness comes through. The execution piece is not clear to me.”
Of course, you wouldn’t expect to hear anything else from the CEO of a major hotel chain but, in this case, there is some truth to the message. I would imagine many guests may feel more comfortable staying at a hotel where there are clear protocols in place.
Is Hyatt a buy?
According to Forbes, over the last five years, Hyatt has generated an increase in revenue with a compound annual growth rate (CAGR) or 3%. Core earnings have compounded 12% annually over the same time period.
And there’s no doubt that Hyatt has a balance sheet that will allow it to make it through to better days. As an investor, you have to weigh when that may be particularly when the stock does not offer you the benefit of a dividend at the present time.
H stock has been falling in advance of earnings. This may set-up an attractive price point for you to get in on the stock. You’re going to have to be willing to wait, but Hyatt was a solid performer before the pandemic, and it should use that loyalty to generate revenue when the pandemic ends.
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