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HHC

Hyatt Hotels Corporation “ HCC” (NYSE: H ) Valuation of Equity Meghan Shevlin March 24, 2014. HHC. Hyatt: global hospitality company engaged in management, franchising, ownership and development of Hyatt-branded hotels, resorts, residences

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HHC

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  1. Hyatt Hotels Corporation“HCC” (NYSE: H)Valuation of Equity Meghan ShevlinMarch 24, 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 $54.84 as of 3/23/2014

  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%) • NI H ($207M) vs. MAR ($626M)

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

  5. Simple Equity Valuation • To compute the value of the equity holders’ interest separately we subtract the value of the debt holders’ interest from the enterprise value

  6. Equity Valuation Model • Risk of equity arises as a result of a risk of the enterprise and the leverage that debt offers to the equity holders • When we estimate cost of capital we assume stability of risk going forward so we assume a constant cost of capital in the future • Cost of capital is dependent on the leverage of the firm, to assume constant leverage is a huge assumption • We therefore use Analyst Forecasts as a shortcut to valuation

  7. Valuing H using Analysts’ Forecasts

  8. Forecast from Valueline • Firm is not at a steady state at the horizon • 25.66% earnings growth rate not feasible in long-term • Negative RE suggests H is overpriced

  9. Valuation using Dividend Discount Model • No dividends paid out • Projected future price (target price) of $55 • Based solely on this valuation, sell

  10. Valuation using Residual Income Model • Assumed growth rate of 3%

  11. Valuation using Residual Income Model • Return on equity=11.7% • 2019 EPS 2.66 • Long term growth rate .5298

  12. Sensitivity Analysis Blue indicates a buy

  13. Conclusion • Dividend discount model, residual earnings model and abnormal growth models require very strong assumption that the leverage is not going to change • Hyatt’s low profit margin may cause the negative RE • Hyatt is extremely overvalued

  14. Questions?

  15. 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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