Hyatt Hotels (H) - Get Hyatt Hotels Corporation Class A Report shares rose Monday, after J.P. Morgan upgraded the hospitality titan to overweight from neutral, seeing the recent selloff as a buying opportunity.
J.P. Morgan analyst Joseph Greff also upped his price target to $101 from $90. He obviously doesn’t see much harm accruing to Hyatt from the omicron Covid variant.
“We are using the 10% pullback from share price levels earlier in the month to get more aggressive on Hyatt,” he wrote in a commentary.
“Shares have underperformed its c-corporation peers year-to-date/the last 12 months, and we think this can turn around as H migrates to a less capital-intensive, more fee-generative, and a more leisure-focused business model.”
Hyatt recently traded at $81, up 4%. Even after that gain, it has slid 11% since Nov. 5.
Hyatt’s acquisition of Apple Leisure Group earlier this month “will be accretive to H’s above-peer managed and franchised room growth rate,” Greff said.
“Importantly, H has indicated that it is embarking on a new asset sale program, which has multiple benefits:
“(1) Unlocking value of its owned hotels at a net multiple higher than what is currently baked into its share price;
(2) Further improving its EBITDA mix to managed and franchised fee EBITDA, which garners a higher multiple than owned-hotel EBITDA; and
(3) Improving its capital structure/net leverage position, eventually leading to shareholder-friendly capital return activities (dividends and share repurchases).”
Further, “The current environment is ripe for H to optimize the value of its owned hotels,” Greff said. And Hyatt’s valuation is attractive versus Hilton (HLT) - Get Hilton Worldwide Holdings Inc Report and Marriott (MAR) - Get Marriott International, Inc. Class A Report, he said.