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Here's Why You Should Retain Hilton (HLT) Stock for Now
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Hilton Worldwide Holdings Inc. (HLT - Free Report) is likely to benefit from its digital initiatives, unit expansion efforts and strategic partnerships and acquisitions. Also, the focus on luxury and lifestyle properties bodes well. However, soft performance in domestic markets and economic uncertainties are a headwind.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Growth Catalysts
Hilton is leveraging technology to provide personalized experiences for guests. Initiatives like a digitally-enabled concierge, room selection from a floor plan and mobile control of in-room entertainment are enhancing the guest experience and driving higher conversion rates and revenue. This technological edge positions Hilton well in the competitive hospitality industry.
The company made significant strides in development, opening more than 100 hotels, totaling approximately 17,000 rooms in first-quarter 2024. This led to net unit growth of 5.6% year over year. Conversions, particularly from DoubleTree and Spark, accounted for 30% of these openings.
The addition of new luxury and lifestyle properties, such as the debut of LXR in Hawaii, the introduction of Waldorf and Canopy brands in the Seychelles and the opening of Conrad Orlando, underscores Hilton's commitment to enhancing its brand portfolio. With a pipeline of 472,000 rooms and a 45% year-over-year increase in system-wide construction starts, Hilton is poised for continued expansion. Signings in Asia-Pacific, particularly the addition of four new Conrad properties, highlight the increasing demand for Hilton's luxury offerings.
During the first quarter of 2024, HLT announced several partnerships and acquisitions, further accelerating its expansion into the lifestyle and experiences categories. The company announced the acquisition of a controlling interest in Sydell Group aims to expand the Nomad brand globally. It revealed an agreement to acquire the Graduate Hotels brand, which positions Hilton to serve a unique market segment in university-anchored towns. The exclusive partnership with AutoCamp offers guests a blend of outdoor adventure and boutique hotel hospitality, appealing to the growing number of travelers seeking exploration and adventure. The strategic initiatives broaden Hilton's customer offerings and enhance its growth potential in some of the industry's fastest-growing markets and segments.
Hilton anticipates system-wide RevPAR growth of 2-4% for the rest of 2024, driven by strong performance in international markets. The company forecasts adjusted EBITDA in the range of $3.375-$3.425 billion and adjusted earnings per share to be between $6.89 and $7.03 for 2024. HLT plans to return approximately $3 billion to shareholders through buybacks and dividends, reaffirming its commitment to delivering shareholder value. The company’s shares have gained 2.1% in the past three months against the industry's 3.4% decline.
Image Source: Zacks Investment Research
Concerns
While international markets are showing strong performance, domestic growth has been slower. During the first quarter, comparable U.S. RevPAR was down 0.4% year-over-year. Renovations, holiday shifts and inclement weather led to the downside.
Hilton's outlook on the U.S. economy remains cautious, even though there is a consensus predicting moderate growth and stable employment. The Federal Reserve's efforts to control inflation are viewed as attempts to achieve a soft landing. Although the company's core customer base, with a median income of $150,000, is relatively stable, broader economic indicators point to financial strain at lower income levels. Despite the apparent strength of Corporate America, Hilton's expectations for U.S. market growth remain subdued.
Economic conditions play a significant role in the hospitality industry. Although the broader economy remains resilient with strong employment numbers and corporate profits, any downturn or prolonged economic uncertainty could impact Hilton’s performance, particularly in the business and leisure travel segments. The company is cautious of the uncertain macro environment.
Our Thoughts
Given Hilton's strategic brand expansions, strong development pipeline and innovative technology integration, the company presents compelling long-term growth prospects. The company’s commitment to returning capital to shareholders through dividends and buybacks enhances investor confidence in its financial health and commitment to shareholder value.
While Hilton exhibits strong growth prospects, potential economic uncertainties in the United States, such as inflation management and broader economic conditions, suggest a cautious stance. HLT trades at a premium with a forward 12-month P/E ratio of 28.25X, compared to the industry average of 22.81X and higher than the median of 27.29X, indicating a stretched valuation.
In light of these factors, we recommend a hold strategy for HLT. Investors with a long-term perspective and tolerance for market fluctuations may find it prudent to maintain current positions rather than make immediate purchases.
The consensus estimate for AGS’s 2024 sales and earnings per share (EPS) suggests growth of 7.7% and 5,200%, respectively, from the year-ago levels.
Adtalem Global Education Inc. (ATGE - Free Report) currently carries a Zacks Rank of 2 (Buy). ATGE has a trailing four-quarter earnings surprise of 18.8%, on average. The stock has surged 97% in the past year.
The Zacks Consensus Estimate for ATGE’s fiscal 2025 sales and EPS indicates an increase of 8.3% and 16.4%, respectively, from year-ago levels.
Royal Caribbean Cruises Ltd. (RCL - Free Report) currently carries a Zacks Rank of 2. RCL has a trailing four-quarter earnings surprise of 18.3%, on average. The stock has rallied 50.5% in the past year.
The Zacks Consensus Estimate for RCL’s 2024 sales and EPS calls for growth of 16.9% and 64%, respectively, from the year-ago levels.
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Here's Why You Should Retain Hilton (HLT) Stock for Now
Hilton Worldwide Holdings Inc. (HLT - Free Report) is likely to benefit from its digital initiatives, unit expansion efforts and strategic partnerships and acquisitions. Also, the focus on luxury and lifestyle properties bodes well. However, soft performance in domestic markets and economic uncertainties are a headwind.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Growth Catalysts
Hilton is leveraging technology to provide personalized experiences for guests. Initiatives like a digitally-enabled concierge, room selection from a floor plan and mobile control of in-room entertainment are enhancing the guest experience and driving higher conversion rates and revenue. This technological edge positions Hilton well in the competitive hospitality industry.
The company made significant strides in development, opening more than 100 hotels, totaling approximately 17,000 rooms in first-quarter 2024. This led to net unit growth of 5.6% year over year. Conversions, particularly from DoubleTree and Spark, accounted for 30% of these openings.
The addition of new luxury and lifestyle properties, such as the debut of LXR in Hawaii, the introduction of Waldorf and Canopy brands in the Seychelles and the opening of Conrad Orlando, underscores Hilton's commitment to enhancing its brand portfolio. With a pipeline of 472,000 rooms and a 45% year-over-year increase in system-wide construction starts, Hilton is poised for continued expansion. Signings in Asia-Pacific, particularly the addition of four new Conrad properties, highlight the increasing demand for Hilton's luxury offerings.
During the first quarter of 2024, HLT announced several partnerships and acquisitions, further accelerating its expansion into the lifestyle and experiences categories. The company announced the acquisition of a controlling interest in Sydell Group aims to expand the Nomad brand globally. It revealed an agreement to acquire the Graduate Hotels brand, which positions Hilton to serve a unique market segment in university-anchored towns. The exclusive partnership with AutoCamp offers guests a blend of outdoor adventure and boutique hotel hospitality, appealing to the growing number of travelers seeking exploration and adventure. The strategic initiatives broaden Hilton's customer offerings and enhance its growth potential in some of the industry's fastest-growing markets and segments.
Hilton anticipates system-wide RevPAR growth of 2-4% for the rest of 2024, driven by strong performance in international markets. The company forecasts adjusted EBITDA in the range of $3.375-$3.425 billion and adjusted earnings per share to be between $6.89 and $7.03 for 2024. HLT plans to return approximately $3 billion to shareholders through buybacks and dividends, reaffirming its commitment to delivering shareholder value. The company’s shares have gained 2.1% in the past three months against the industry's 3.4% decline.
Image Source: Zacks Investment Research
Concerns
While international markets are showing strong performance, domestic growth has been slower. During the first quarter, comparable U.S. RevPAR was down 0.4% year-over-year. Renovations, holiday shifts and inclement weather led to the downside.
Hilton's outlook on the U.S. economy remains cautious, even though there is a consensus predicting moderate growth and stable employment. The Federal Reserve's efforts to control inflation are viewed as attempts to achieve a soft landing. Although the company's core customer base, with a median income of $150,000, is relatively stable, broader economic indicators point to financial strain at lower income levels. Despite the apparent strength of Corporate America, Hilton's expectations for U.S. market growth remain subdued.
Economic conditions play a significant role in the hospitality industry. Although the broader economy remains resilient with strong employment numbers and corporate profits, any downturn or prolonged economic uncertainty could impact Hilton’s performance, particularly in the business and leisure travel segments. The company is cautious of the uncertain macro environment.
Our Thoughts
Given Hilton's strategic brand expansions, strong development pipeline and innovative technology integration, the company presents compelling long-term growth prospects. The company’s commitment to returning capital to shareholders through dividends and buybacks enhances investor confidence in its financial health and commitment to shareholder value.
While Hilton exhibits strong growth prospects, potential economic uncertainties in the United States, such as inflation management and broader economic conditions, suggest a cautious stance. HLT trades at a premium with a forward 12-month P/E ratio of 28.25X, compared to the industry average of 22.81X and higher than the median of 27.29X, indicating a stretched valuation.
In light of these factors, we recommend a hold strategy for HLT. Investors with a long-term perspective and tolerance for market fluctuations may find it prudent to maintain current positions rather than make immediate purchases.
Zacks Rank & Key Picks
Hilton currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector are:
PlayAGS, Inc. (AGS - Free Report) sports a Zacks Rank of 1 (Strong Buy). AGS has a trailing four-quarter earnings surprise of 33.3%, on average. The stock has appreciated 100.5% in the past year. You can see the complete list of today’s Zacks Rank #1 stocks here.
The consensus estimate for AGS’s 2024 sales and earnings per share (EPS) suggests growth of 7.7% and 5,200%, respectively, from the year-ago levels.
Adtalem Global Education Inc. (ATGE - Free Report) currently carries a Zacks Rank of 2 (Buy). ATGE has a trailing four-quarter earnings surprise of 18.8%, on average. The stock has surged 97% in the past year.
The Zacks Consensus Estimate for ATGE’s fiscal 2025 sales and EPS indicates an increase of 8.3% and 16.4%, respectively, from year-ago levels.
Royal Caribbean Cruises Ltd. (RCL - Free Report) currently carries a Zacks Rank of 2. RCL has a trailing four-quarter earnings surprise of 18.3%, on average. The stock has rallied 50.5% in the past year.
The Zacks Consensus Estimate for RCL’s 2024 sales and EPS calls for growth of 16.9% and 64%, respectively, from the year-ago levels.