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HHC

Hyatt Hotels Corporation “ HCC” (NYSE: H ) Full-Information Forecasting and Valuation Meghan Shevlin April 23, 2014. HHC.

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HHC

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  1. Hyatt Hotels Corporation“HCC” (NYSE: H)Full-Information Forecasting and Valuation Meghan Shevlin April 23, 2014

  2. HHC • Hyatt: global hospitality company engaged in management, franchising, ownership and development of Hyatt-branded hotels, resorts, residences • Hotel industry still suffering from the recession • 61% Revenues from Room sales • Industry growth of 3.3% expected through 2018 • Trading at $54.64 as of 4/22/2014

  3. Industry Comparables • Highly competitive industry with 21M rooms available • Hyatt owns over 500 properties (147,388 rooms) in 42 countries vs HOT & MAR (>340,000) • H NEA ($5,228) vs. MAR ($1,434) • H Profit Margin (8%) vs. MAR (25%) HOT (18%) IHG (18%) may explain H’s negative RI • NI H ($207M) vs. MAR ($626M)

  4. Explains high NEA • Industry competitors franchise approximately 80%

  5. Hyatt • Majority Voting structure • Lower liquidity in stock than competitors • Doesn’t offer dividends • Primarily US Based-earnings • Large number of contracts increasing the number of rooms in coming years • Expects to generate $1.2B FCF between 2014-2016 • Increase leverage by $800M to give H the ability to repurchase shares or invest • $1.9B from cash flows from operations with $1.1B of investment/cap ex already identified • High expectations in group revenue • Hyatt is for investors looking for long-term investment

  6. Agenda Common size balance sheet and income statement Full information forecast of IS & BS EPM and EATO using forecasted financials NEA and EPAT using new EPM and EATO Residual Income Model Adjustments to enterprise value Final valuation and investment decision

  7. Common Size & Full Information Income Statement

  8. Common Size & Full Information Balance Sheet

  9. Forecast of EPM

  10. Forecast of EATO

  11. Assumptions

  12. Residual Income Valuation Model

  13. Valuation • After adjusting for debt the value of H was approximately $9.47B • There are approximately 156M shares outstanding • Share price per my valuation is $60.74 • Share price per Yahoo Finance (4/22/14) is $54.74 • H is 10% Undervalued • Recommendation: Buy

  14. Issues surrounding Hyatt • Hyatt has extremely low profit margins as compared to the industry; profit margins are expected to remain constant in the short term and grow in the long term • Hyatt must evaluate alternatives to increase profit margins • Hyatt’s low EATO cause high amounts of forecasted NEA decreasing the value of the firm • Market is optimistic as post-recession financials for H and industry comparables have been improving • Hyatt should align more with comparables or enter a niche market. Currently, Hyatt is involved in a lot of small ventures; none of which prove to be overly profitable

  15. Conclusion • H is expected to grow drastically in the long term • Investors should focus more on Hyatt in the long term because of their growth strategies, expansion opportunities and recent contracts/acquisitions • Hyatt is a Buy @ $54.74

  16. Questions?

  17. Sources • Hyatt Hotel Corporation Annual Report 2012 • Hyatt Hotel Corporation Investor Fact Book 2012 • Valuation for Financial and Accounting Professionals: A Guide to Valuation and Financial Statement Analysis, Easton, Sommers • www.nasdaq.com/symbol/h • www.yahoo.com

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