Hyatt’s Brand Intangible Asset Continues to Resonate With Travelers

After digesting fourth-quarter results, we plan to lift Hyatt’s H $109 fair value estimate by a mid-single-digit percentage, driven by stronger revenue per available room, or revPAR, and owned asset margins, leaving shares appropriately valued.

RevPAR growth in 2022 was 60%, outpacing our 57% estimate and reaching 94% of 2019′s level. In the quarter, revPAR was at 102% of prepandemic marks versus 97% last quarter, led by average daily rates for leisure and group that were 119% and 115% of 2019′s level, respectively. Hyatt noted that leisure demand remains resilient, and that group and business demand is expected to improve further in 2023, based on its conversations with corporate partners. As a result, Hyatt guided 2023 revPAR growth for 10%-15% (outpacing targets provided by its peers). This is above our 7%, which we plan to increase to include a first-half lift of 20% growth and the back-half lift of a mid-single-digit percentage lift (as comparisons get tougher). Meanwhile, 2022 EBITDA of $908 million came in above our $871 million forecast, as owned operating margins of 27% surpassed our 25% estimate, which we now expect to endure.

Hyatt’s strengthening brand intangible asset (the source of its narrow moat) has been supported by replacing sold owned assets with acquisitions of asset-light brands, which generate stronger returns on investment capital. In fact, properties that have joined the company over the past five years represented 34% of fourth-quarter fees. Further, total 2022 cash flow from operations were 70% above 2019′s level, while capital expenditures were 46% below that year, resulting in free cash flow of $473 million. Meanwhile, the room pipeline of 117,000 rooms is up 4% from last year and represents a 38% of its existing units. Thus, Hyatt’s 2022 unit growth of 6.7% (versus our 6.5% estimate) continued to lead the industry. We expect Hyatt to maintain this level of room growth during the next few years.