Hyatt Hotels (H) Q1 Earnings: FX Headwinds to Hit Stock?

Hyatt Hotels Corporation H is set to report results on May 3, before the market opens. Last quarter, the company posted a negative earnings surprise of 12.50%. Further, the company’s earnings have missed estimates in three of the trailing four quarters, with an average negative surprise of -14.34%.

Let's see how things are shaping up prior to this announcement.

Factors to Consider

Hyatt has been facing major headwinds over the past few quarters mainly from a strong dollar, which is leading to unfavorable foreign exchange translation. Moreover, given its significant presence in Europe and Asia, the company’s first-quarter revenues are likely to be hurt by currency headwinds.

Further, a slowdown in the Chinese economy is expected to be a major blow to Hyatt’s top line, as China is one of its most important markets. We thus expect revenues in the region to remain under pressure. Moreover, the company’s business in New York continues to be dampened by an oversupply of hotels.

On the bright side, Hyatt’s performance in the U.S. is likely to continue. Economic growth, along with lower unemployment numbers and oil prices, should translate to an increase in disposable incomes in U.S. households. This would, in turn, boost demand in the country. Improved group demand and greater pricing power resulted in strong RevPAR over the past few quarters – a trend that is anticipated to continue in the first quarter as well.

Earnings Whispers

Our proven model does not conclusively show that Hyatt is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: The company has an Earnings ESP of -4.17%. This is because the Most Accurate estimate is pegged at 23 cents, while the Zacks Consensus Estimate stands higher at 24 cents.

Zacks Rank: Hyatt has a Zacks Rank #3. Although this increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the broader consumer discretionary sector that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Central Garden & Pet Company CENT, with an Earnings ESP of +3.39% and a Zacks Rank #2.

Cinemark Holdings, Inc. CNK, with an Earnings ESP of +2.13% and a Zacks Rank #2.

Pinnacle Entertainment Inc. PNK, with an Earnings ESP of +23.21% and a Zacks Rank #3.

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