The hotel chain's stock has done well for the past few years, but it hasn't kept pace with industry leaders. That's about to change. By Teresa Rivas

   -- Asset-light business models allow hotels to franchise their brands, a 
      lucrative arrangement that improves their cash flow. 
 
   -- While Marriott and Hilton have largely transitioned to this model, Hyatt 
      is in the midst of its transformation, meaning there's more upside for 
      investors. 
 
   -- Its recent sale of its Playa Hotel & Resorts is the latest example that 
      Hyatt is successfully moving forward with this strategy, which will 
      increasingly pay off in the coming years. 

Vacations are expensive -- for you and your hotel. Hyatt Hotels is doing something about it.

From crisp sheets to cool pillows and fresh paint, travelers often have high expectations for the places they stay that go beyond the basics of location and price. The price of real estate and continual upgrades can mount up quickly for hotels and be a drain on profits.

It's perhaps little wonder then that the industry's biggest players, like Marriott International and Hilton Worldwide Holdings, have already largely moved to what's called an asset-light model; now Hyatt, too, is transforming its business to emulate this strategy. It works much like a fast-food franchise: Hotel owners get to use the brand name and cachet for their properties, among other perks, while the companies themselves don't have to shoulder the cost of the physical properties and upkeep.

This is a long-term strategy that the other hotels have pursued for years, and it has paid off for shareholders in the postpandemic travel boom, with Marriott stock up some 200% over the past five years and Hilton up 240%. Hyatt has done well, too, but hasn't kept quite pace -- yet that could change as it too looks to emulate the industry leaders.

"We like the whole neighborhood, all the big hotels that have built these asset-light businesses with high-quality characteristics," says Mike Smith, head of Allspring's Growth Equity team. "What sets Hyatt apart is that it has a little bit more room for improvement. It's not quite as optimized yet. But it knows the playbook and is on the path, and while it trades at a discount now, that will go away if it can execute."

Hyatt trades at just over 14 times 2026 enterprise value to Ebitda, or earnings before interest, taxes, depreciation, and amortization, a metric many analysts prefer for capital-intensive businesses that include a portfolio of properties. That's below its own five-year average approaching 28 times, and Hilton and Marriott, at nearly 19 times and 16 times, respectively.

Melius Research analyst Conor Cunningham highlighted the stock in his Q&A with Barron's in early July, arguing that, if anything, Hyatt deserved to trade at a premium, not a discount, given its more-high-end customer base. His price target is $166, a nearly 14% premium to the stock's recent $146.

That valuation gap may begin to close as Hyatt makes further progress on the asset-light model, as Smith notes. It took a big step forward in that direction at the end of June when it announced it had agreed to sell the entirety of its owned real estate under the Playa Hotel & Resorts brand, a portfolio that includes 15 all-inclusive resort assets in Mexico, the Dominican Republic, and Jamaica, for $2.6 billion.

The development was so positive that Raymond James analyst RJ Milligan upgraded his rating on Hyatt to Strong Buy from Market Perform on the news, establishing a $165 price target. He highlights that the transaction "1) was sooner than expected, 2) for the entire portfolio (versus just a portion of the assets), and 3) accelerates the timeline for $2 billion of asset sales that were expected by the end of 2027," and called it "a bit of a head-scratcher" that the shares weren't reacting more positively to the deal. Mizuho Securities' Ben Chaiken, whose $198 price target is the highest on the Street, also praised the deal's terms and swiftness.

With more cash on hand, Hyatt will be able to ramp up its expansion in the highly fragmented hotel space.

As Cunningham notes, Hyatt is the smallest of the major publicly traded hotels, with just a fifth of the rooms of industry leader Marriott. "Just given the sheer size of the company, the growth opportunity is immense," he writes. His research shows that Hyatt competitors have on average 14 hotels per market relative to Hyatt's four. That leaves a lot of room for Hyatt to expand to cater to its very active base -- 54 million people belong to its loyalty program.

Those members also give hotel owners a huge incentive to partner with Hyatt so that they can tap that customer base, its digital capabilities, and the company's benefits of scale. Independent operators can seldom offer the amenities, tech-forward renovations, network of properties, and negotiating power with online travel agencies that big players can, making them increasingly likely to sign up with big hotel chains.

After dipping this year, consensus estimates call for Hyatt's earnings per share to jump 44% in 2026 to $3.36.

Of course, sure things don't exist, and Hyatt is proof of that. If the broader economic picture deteriorates, travel demand slackens, or the financial benefits of its transformation disappoint, investors would likely sour on the stock.

Nonetheless, travel demand has held up remarkably well even after the initial postpandemic revenge travel boom, and the Playa deal is only the latest of a long list of sales and franchise agreements that show Hyatt is committed and disciplined in moving toward an asset-light model, such as its 2024 acquisition of Standard and Bunkhouse owner Standard International. Overall, asset-light holdings will account for more than 90% of its earnings, a figure that stood at just 37% at its 2009 initial public offering.

Investors sharing in Hyatt's increasing profitability will be able to fund their own beach getaway.

The Technical View

Hyatt has risen in 11 of the last 14 weeks and is forming a bullish cup-with-handle pattern. A breakout would occur if it breaches $152.48 to the upside. The stock is trading above both its 50- and 200-day moving averages, showing strong momentum. Since bouncing off the key $100 level in early April, it has been trending steadily higher. If the pattern plays out, Hyatt could reach $172 by year-end. -- Doug Busch

Write to Teresa Rivas at teresa.rivas@barrons.com.

To subscribe to Barron's, visit http://www.barrons.com/subscribe

(END) Dow Jones Newswires

August 01, 2025 21:31 ET (01:31 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.