Earnings Estimates Rising for This Hospitality Stock

restaurant stocksWhile corporate earnings, especially among international blue-chip companies, continue to be mediocre at best, the hospitality industry, which is a solid reflection on the U.S. economy, is announcing very good numbers.

Hyatt Hotels Corporation (H) beat the Street significantly on earnings and revenues. The stock moved significantly higher after the news, and the company’s metrics were solid.

The company reported second-quarter revenues grew 7.7% to $1.09 billion, up from $1.01 billion in the comparable quarter.

Operating margins at owned and leased hotels increased 230 basis points in the second quarter of 2013 compared to the second quarter of 2012. The company opened sixteen properties during the quarter. As of June 30, 2013, the company’s contract base consisted of approximately 200 hotels, totaling 45,000 rooms.

Earnings attributable to Hyatt Hotels on an adjusted basis were $70.0 million, up from $39.0 million in the same quarter last year. This increase in profitability is a solid indicator of business activity for the company.

In the latest quarter, Hyatt Hotels bought 4.77 million of its own common shares at an average price of $41.10 per share. This year, the company plans to open more than 40 new hotels. Occupancy in the 2013 second quarter grew 1.3% to 75.7%.

Wall Street immediately bumped the Hyatt Hotel’s earnings estimates higher for the rest of the year. The company’s stock chart is featured below:

Hyatt Hotels Corp Chart

Chart courtesy of www.StockCharts.com

On the stock market, Hyatt Hotels hasn’t really done much. I view the position as expensively priced currently. But the hospitality industry is a good barometer on the U.S. economy, and hotel bookings seem to be more robust.

We’ve had a real mixed bag of earnings and, as mentioned, many companies haven’t been able to beat the Street on one financial metric.

On a global basis, I still see the U.S. economy as the leader and recent economic data has shown better economic activity; albeit, price inflation is a part of the equation. (See “2Q Earnings Reports Proving Market Uptrend Still Intact.”)

Occupancy and operating margins are key to the hospitality industry, and Hyatt Hotels delivered. A number of other hotel chains are reporting now, and I’ll be reviewing their earnings results for confirmation of an improving trend within the industry.

Much is made about beating Wall Street estimates; this will never change. But it is important to consider that comparable figures and percentage changes can be misleading, especially after a major shock like the Great Recession.

Like many industries, hospitality financial metrics are only now getting back to where they were before the financial crisis. While growth is absolutely the key, comparable growth does have to be taken with a grain of salt. Memories on Wall Street continue to be very short.

Hyatt Hotels reported a solid second quarter, and the stock is ripe for a bounce higher. I’m not a fan of investing in mature hotel chains, as competition in this sector is fierce.

In Hyatt Hotels’ case, the stock is expensively priced and so is its forward price-to-earnings ratio. In terms of opportunities related to the hospitality industry, restaurants stocks offer a much greater bang for your investment buck.