1 / 18

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

infinity
Download Presentation

HHC

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  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

More Related