Hyatt (H, Financial) was a relative outperformer in the quarter and declined just 0.5%. The strong relative performance was in part because the company has important attributes that make it a good hedge against inflation. This is since Hyatt is able to reprice its rooms on a daily basis. This should lead to stronger margins as management expects hotel-level margins to be between 100 basis points and 300 basis points above pre-COVID levels. As a result, the company should generate strong free cash flow that, coupled with cash proceeds from asset sales, it can use to pay down the debt taken on to complete its acquisition of Apple Leisure Group. Hyatt still has a strong balance sheet since the start of the COVID pandemic. Hyatt’s balance sheet, cash flow, and further asset sales will enable the company to restart a return of capital program by the end of the year. We think its pivot to an increasingly asset-light business with an improved balance sheet and cash flow profile should also result in more stable earnings that could result in multiple expansion over time.
From Ron Baron (Trades, Portfolio)'s Baron Focused Growth Fund first-quarter 2022 letter.
