Pacific Coast Renovations Expected To Benefit Future Operations By Q1 2025

Key Takeaways

• Streamlining operations through asset sales may boost earnings and margins by improving focus on core, high-performing resorts.
  
• Stock repurchases could enhance EPS and reflect shareholder confidence through reduced share count and strategic capital allocation.
  
• Operational disruptions from natural events and advisories, alongside asset divestments and currency volatility, pose ongoing risks to Playa Hotels & Resorts' revenue and profit margins.

Catalysts

Owns, develops, and operates resorts in prime beachfront locations in Mexico and the Caribbean.

• Planned completion of renovation work in the Pacific Coast segment by Q1 2025 is expected to improve occupancy and ADR, positively impacting future revenue and profitability.
  
• Improved guest segmentation with a higher direct booking mix is driving customer sourcing and ADR gains, likely enhancing revenue and potentially increasing net margins by reducing reliance on third-party commissions.
  
• Sale of non-core assets like the Jewel Paradise Cove resort, along with ongoing divestitures, could streamline operations and improve focus on core, high-performing resorts, which may boost overall earnings and margins.
  
• Implementation of FX hedges on Mexican peso exposure at favorable exchange rates is anticipated to provide a year-over-year FX benefit, supporting net margins and potentially enhancing earnings stability.
  
• Continued stock repurchases under the capital allocation strategy could improve EPS by reducing the number of outstanding shares, signaling shareholder confidence and value creation.

Playa Hotels & Resorts Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Playa Hotels & Resorts's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.9% today to 8.7% in 3 years time.
• Analysts expect earnings to reach $90.8 million (and earnings per share of $0.82) by about March 2028, up from $73.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.8x on those 2028 earnings, down from 22.2x today. This future PE is lower than the current PE for the US Hospitality industry at 23.3x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.3%, as per the Simply Wall St company report.

Playa Hotels & Resorts Future Earnings Per Share Growth

Risks

• The impact of Hurricane Beryl disrupted operations in some segments, negatively affecting occupancy and resulting in lower resort EBITDA, which could continue to impact revenue and profit margins.
  
• The U.S. State Department's travel advisory for Jamaica significantly reduced RevPAR and led to a 50% decline in resort EBITDA, posing ongoing risks to revenue from affected segments.
  
• Construction disruptions in the Pacific Coast region resulted in notable occupancy declines and affected profitability, potentially impacting future earnings until the renovations are completed.
  
• The divestment of assets, such as the sale of Jewel resorts, may reduce revenue-generating capacity despite the positive short-term financial impact, impacting long-term revenue streams.
  
• Ongoing foreign currency exchange rate fluctuations present volatility risks to earnings and EBITDA margins, despite hedging efforts to mitigate such risks.

Valuation

• The analysts have a consensus price target of $13.362 for Playa Hotels & Resorts based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $90.8 million, and it would be trading on a PE ratio of 18.8x, assuming you use a discount rate of 9.3%.
• Given the current share price of $13.31, the analyst price target of $13.36 is 0.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.