Dj Hyatt Seen As Unexpected Suitor For Playa Hotels - Market Talk

It isn't surprising that Playa Hotels & Resorts is an interested seller, but it is surprising that Hyatt would be on the other end of the line, Truist analysts say in a research note. Playa has been telegraphing for several years that it believes its shares are undervalued on the public market, the analysts say. But a private buyer, like a high net worth family, seemed like the more likely suitor, as opposed to Hyatt, which has become much more of an asset-lite company that sells hotels rather than buys them, the analysts say. They expect Hyatt would likely rebrand Playa's all-inclusive hotels to Hyatts and then sell off the real estate. (dean.seal@wsj.com)

By Steve Gelsi

Wall Street expects Hyatt to sell hotel properties in the Caribbean, Mexico and Jamaica soon after closing Playa deal

Hyatt Hotels is in talks to spend around $1.5 billion to buy publicly-traded Playa Hotels, but will likely sell them as part of its asset-light business model.

Playa Hotels (PLYA) stock was down 2% in premarket trading on Tuesday.

Shares cooled off from a 28% rally in the previous session to close at $12.35 a share, after it announced exclusive deal talks with larger rival Hyatt Hotels Corp. (H).

Truist Securities analyst C. Patrick Scholes reiterated a buy rating on Playa Hotels and said the company's search for a buyer is not a big surprise due to management's vocal complaints about the hotel operator's undervalued share price.

He reiterated his price target of $13 a share for Playa Hotels stock and said a tie-up with Hyatt appears likely.

Hyatt (H) already owns about 10% of Playa's stock as well as the brands of Playa's highly-rated Ziva and Zilara all-inclusive hotels.

"It comes as no surprise to use that PLYA is an interested seller," Truist analyst Scholes said in a research note. "On the other hand, we had always thought that a private buyer such as a high net worth family would be the most likely buyer."

In its deal-talk announcement on Monday, Hyatt said, "We will continue to map out a clear path for an asset-light outcome for any strategic alternatives we undertake."

Truist analyst Scholes said it's likely Hyatt would move quickly to sell Playa's properties after the deal closes.

"We see their course of action being converting the all-inclusive hotels that are not currently Hyatt branded to a Hyatt brand and then selling-off the real estate," Scholes said. "We speculate the real estate could be sold-off over time or possibly via a pre-arranged sale concurrent with the possible acquisition of PLYA."

Playa Hotels owns properties on the Pacific Coast, Yucatán Peninsula, Jamaica and Dominican Republic in locales such as Puerto Vallarta, Los Cabos and Montego Bay.

-Steve Gelsi

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The S&P 500 Index on Monday rose +0.67%, the Dow Jones Industrials Index closed up +0.22%, and the Nasdaq 100 Index closed +0.93%. March E-mini S&P futures (ESH25) rose +0.62%, and March E-mini Nasdaq futures (NQH25) rose +0.84%.

Stocks on Monday rallied on strength in tech and chip stocks. Stocks were also boosted by the fact that Congress passed a stop-gap funding bill last Friday and averted a US government shutdown, which would have been negative for the US economy. The stop-gap bill funded the government through mid-March 2025.

Stocks overcame early weakness tied to higher T-note yields and weaker-than-expected US economic reports.

Monday's Nov US durable goods report was weaker than expected, although capital goods orders were a bit stronger than expected. Nov US durable goods orders fell -1.1% m/m, weaker than expectations of -0.3%, although Oct was revised higher to +0.8% from +0.3%. Nov durable goods orders ex-transportation fell -0.1%, weaker than expectations of +0.3%. Nov capital goods orders ex defense and aircraft, a proxy for capital spending, rose +0.7% m/m, stronger than expectations of +0.1%.

Monday's Nov US new home sales report of +5.9% to 664,000 was weaker than expectations for an increase to 669,000.

Monday's Dec Conference Board US consumer confidence index of -8.1 to 104.7 was substantially weaker than expectations for an increase to 113.2.

The markets are discounting the chances at 9% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Last Friday's stop-gap bill did not contain the debt ceiling suspension that President-Elect Trump wanted, meaning that Republicans in the first half of 2025 will have to increase, suspend, or abolish the debt ceiling. The debt ceiling will now be reinstated at midnight on January 2, 2025, at the then-current level of debt. The Treasury will be able to use extraordinary measures to stay under the debt ceiling until the so-called “X-date” in spring or summer 2025, when the Treasury will begin to default on its obligations unless Congress takes action on the debt ceiling.

Overseas stock markets on Monday closed mixed. The Euro Stoxx 50 on Monday closed down -0.19%, adding to the overall loss of -1.9% seen last Thursday and Friday. China's Shanghai Composite Index closed -0.50%, the third consecutive session loss. Japan's Nikkei Stock 225 closed up +1.19%, snapping the string of six consecutive session losses.

Interest Rates

March 10-year T-notes (ZNH25) on Monday fell by -13 ticks, consolidating mildly above last Thursday's 6-1/2 month low. The 10-year T-note yield rose by +6.4 bp to 4.587%, and edged to a new 6-1/2 month high of 4.597%. T-note prices traded lower after Congress last Friday averted a US government shutdown that would have been negative for the US economy. T-note prices were also undercut by supply overhang as the Treasury on Monday sold $69 billion of 2-year T-notes. The Treasury will sell $70 billion of 5-year T-notes on Tuesday and $44 billion of 7-year T-notes on Thursday. T-note prices fell on Monday despite the weaker-than-expected US economic reports.

European government bond yields rose after ECB President Lagarde said that ECB members remain alert to lingering price pressures in the services sector but remain confident that the CPI is nearing the ECB’s target.

The 10-year German bund yield rose +3.8 bp to 2.323%. The 10-year UK gilt yield rose +3.6 bp to 4.546.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its January 30 policy meeting and a 9% chance for a -50 bp rate cut at that meeting.

US Stock Movers

Several of the Magnificent 7 stocks showed strength Monday and helped to lead the broad market higher. Tesla and Meta Platforms showed gains of more than +2%, and Alphabet rose +1.54%.

Chip stocks were leaders in the Nasdaq 100 index on Monday, with GLOBAFOUNDARIES and Broadcom showing gains of more than +5%. AMD and Microchip Technology showed gains of more than +4%.

Qualcomm rallied +3.47% on Monday, and Arm Holdings Plc fell by -3.85%, after Qualcomm won in court against Arm's claim of a chip technology license breach when Qualcomm bought a start-up in 2021.

Xerox rallied more than +12% after news that Xerox agreed to buy laser printer maker Lexmark International in a deal worth $1.5 billion.

Playa Hotels & Resorts rose by +28% after news of an exclusivity agreement with Hyatt Hotels Corp to negotiate the possible acquisition of Playa, which owns or runs beachfront and all-inclusive resorts in Mexico, Jamaica, and the Dominican Republic. Hyatt closed the down by -1.13%.

Crypto-stocks traded lower due to the -2.7% sell-off in bitcoin fell by -8.8% on Monday, while Riot Platforms fell more than -5%. Coinbase fell more than -3%.

Earnings Reports (12/24/2024)

None.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.

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