Hyatt (H, Financial) increased 11.7% and helped performance by 59 bps in the quarter. The company continues to achieve strong revenue-per-available-room as business travel recovers from pandemic lows and leisure travel remains strong. The company also benefited from its Apple Leisure Group acquisition, which has made the business more asset light and improved cash flow generation. Leisure rates remain strong and are still well above pre-COVID levels. This strength combined with continued improvement in business transient travel and group bookings are leading to higher margins and increased cash flow that Hyatt is using to buy back its shares. We believe Hyatt shares are significantly undervalued. While there remains investor concern that a possible recession will result in slower or even negative growth, we believe most of this is being priced into the stock at current levels. We clearly think the risk/reward for the stock skews positively. Thus far, the company has seen no material slowdown in occupancy levels or rates and continues to increase prices, especially on the leisure side. While leisure may be experiencing peak demand levels, management believes any slowdown in growth would be offset by the continued recovery of group and business customers. Volumes in these segments are rapidly returning to pre-pandemic levels. Hyatt’s balance sheet and cash flow profile remain strong, which, combined with additional owned hotel asset sales, should result in more consistent earnings. This should expand the stock’s multiple over time.
Shares of global hotelier Hyatt Hotels Corp. increased in the quarter, driven by steady spending at its leisure properties and improvement in its business transient and group bookings. Strong revenue growth resulted in improved margins versus pre-pandemic levels. Continued progress in Hyatt’s transformation into an asset-light business based on management and franchise fees is generating increased cash flow that the company is using to buy back shares and make accretive acquisitions. Its solid balance sheet should allow it to withstand a possible downturn or recession.
From Ron Baron (Trades, Portfolio)'s Baron Focused Fund fourth-quarter 2022 letter.
