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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 poised to benefit from strong RevPAR performance, lifestyle properties and expansion initiatives. Also, the focus on strategic partnerships and hotel conversions bodes well. However, economic uncertainties are headwinds.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Growth Catalysts
Strong RevPAR Performance: In the second-quarter 2024, system-wide RevPAR increased 3.5% year over year. The upside was driven by robust group performance, a continued recovery in business transient travel and favorable holiday comparisons. Transient RevPAR grew 2% year over year, with increases in both business and leisure demand. Leisure transient RevPAR exceeded prior peaks, fueled by strong summer travel demand, especially in international markets. Group RevPAR saw a more than 10% year-over-year increase, with strong demand for corporate and social meetings and lengthening booking windows.
The company anticipates the momentum to persist for some time. For third-quarter 2024, management forecasts system-wide RevPAR (on a currency-neutral basis) to increase in the 2-3% band on a year-over-year basis.
Expansion Initiatives: Hilton’s development strategy remains a key driver of long-term growth. The company continues to expand its global presence, surpassing 8,000 hotels worldwide. In the second quarter, Hilton opened 165 new properties, achieving a net unit growth of 6.2%. The addition of brands like Graduate Hotels and NoMad, along with partnerships like Small Luxury Hotels of the World, enhance Hilton’s portfolio and boost its offerings in the fast-growing lifestyle segment.
Growth in Lifestyle Segment: Hilton’s lifestyle segment has reported significant growth, driven by increasing demand for unique and immersive travel experiences. The company expanded its lifestyle offerings by more than 30% in the past year, fueled by brands like Curio and Tapestry, and the acquisition of Graduate Hotels. With approximately 400 lifestyle properties and more in the pipeline, Hilton is well-positioned to capitalize on this growing market.
Strategic Partnerships and Conversions: Strategic partnerships have played a crucial role in Hilton’s growth strategy. The company’s exclusive agreement with Small Luxury Hotels of the World and the addition of AutoCamp properties have broadened its luxury offerings and enhanced HLT’s network. Conversions accounted for half of the openings in the second quarter, reflecting the strength of brands like Graduate and DoubleTree. These initiatives are expected to contribute positively to Hilton’s overall performance.
Solid Pipeline: Hilton’s pipeline remains robust, with 63,000 rooms signed in the quarter, bringing the total pipeline to approximately 508,000 rooms. This represents an 8% increase from the previous quarter and a 15% year-over-year rise. The company’s construction starts were up 160% year over year, indicating a strong growth trajectory. With about 60% of the pipeline located outside the United States and nearly half under construction, Hilton is on track to exceed prior peak levels of starts by 2024-end.
Image Source: Zacks Investment Research
The company’s shares have gained 3.9% in the past three months against the industry's 1.9% decline.
Concerns
While Hilton has delivered strong results in the second quarter, the current macroeconomic environment poses certain risks. Elevated inflation and interest rates have led to delays in new openings and developments. Additionally, challenging financing conditions in some regions could impact the company’s ability to access cash or secure new financing arrangements. Hilton’s management remains cautious and focused on mitigating these challenges while continuing to execute its growth strategy.
Our Thoughts
Hilton remains a strong stock to hold, thanks to impressive RevPAR performance, strategic expansion and growth in its lifestyle segment. The company's solid pipeline and recent outperformance against the industry declines highlight its positive trajectory.
However, potential investors should remain mindful of the economic headwinds, including elevated inflation, interest rates and the associated risks of delays in openings and development. HLT trades at a premium with a forward 12-month P/E ratio of 27.51X, compared to the industry average of 21.57X and higher than the median of 27.39X, indicating a stretched valuation. The stock's premium valuation adds to the risk-reward consideration.
Overall, Hilton’s growth prospects and strategic initiatives and the Zacks Rank #3 (Hold) justify retaining the stock.
RCL has a trailing four-quarter earnings surprise of 18.5%, on average. The stock has rallied 59.9% in the past year. The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share (EPS) calls for growth of 18.1% and 69.9%, respectively, from the year-ago levels.
DoubleDown Interactive Co., Ltd. (DDI - Free Report) currently flaunts a Zacks Rank of 1. DDI has a trailing four-quarter earnings surprise of 22.1%, on average. The stock has surged 76.6% in the past year.
The Zacks Consensus Estimate for DDI’s 2024 sales and EPS indicates an increase of 12.6% and 15.8%, respectively, from the year-ago levels.
Monarch Casino & Resort, Inc. (MCRI - Free Report) carries Zacks Rank #2 (Buy). MCRI has a trailing four-quarter negative earnings surprise of 3.5%, on average. The stock has increased 13.1% in the past year.
The Zacks Consensus Estimate for MCRI’s 2024 sales and EPS indicates an increase of 2.3% and 10%, 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 poised to benefit from strong RevPAR performance, lifestyle properties and expansion initiatives. Also, the focus on strategic partnerships and hotel conversions bodes well. However, economic uncertainties are headwinds.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Growth Catalysts
Strong RevPAR Performance: In the second-quarter 2024, system-wide RevPAR increased 3.5% year over year. The upside was driven by robust group performance, a continued recovery in business transient travel and favorable holiday comparisons. Transient RevPAR grew 2% year over year, with increases in both business and leisure demand. Leisure transient RevPAR exceeded prior peaks, fueled by strong summer travel demand, especially in international markets. Group RevPAR saw a more than 10% year-over-year increase, with strong demand for corporate and social meetings and lengthening booking windows.
The company anticipates the momentum to persist for some time. For third-quarter 2024, management forecasts system-wide RevPAR (on a currency-neutral basis) to increase in the 2-3% band on a year-over-year basis.
Expansion Initiatives: Hilton’s development strategy remains a key driver of long-term growth. The company continues to expand its global presence, surpassing 8,000 hotels worldwide. In the second quarter, Hilton opened 165 new properties, achieving a net unit growth of 6.2%. The addition of brands like Graduate Hotels and NoMad, along with partnerships like Small Luxury Hotels of the World, enhance Hilton’s portfolio and boost its offerings in the fast-growing lifestyle segment.
Growth in Lifestyle Segment: Hilton’s lifestyle segment has reported significant growth, driven by increasing demand for unique and immersive travel experiences. The company expanded its lifestyle offerings by more than 30% in the past year, fueled by brands like Curio and Tapestry, and the acquisition of Graduate Hotels. With approximately 400 lifestyle properties and more in the pipeline, Hilton is well-positioned to capitalize on this growing market.
Strategic Partnerships and Conversions: Strategic partnerships have played a crucial role in Hilton’s growth strategy. The company’s exclusive agreement with Small Luxury Hotels of the World and the addition of AutoCamp properties have broadened its luxury offerings and enhanced HLT’s network. Conversions accounted for half of the openings in the second quarter, reflecting the strength of brands like Graduate and DoubleTree. These initiatives are expected to contribute positively to Hilton’s overall performance.
Solid Pipeline: Hilton’s pipeline remains robust, with 63,000 rooms signed in the quarter, bringing the total pipeline to approximately 508,000 rooms. This represents an 8% increase from the previous quarter and a 15% year-over-year rise. The company’s construction starts were up 160% year over year, indicating a strong growth trajectory. With about 60% of the pipeline located outside the United States and nearly half under construction, Hilton is on track to exceed prior peak levels of starts by 2024-end.
Image Source: Zacks Investment Research
The company’s shares have gained 3.9% in the past three months against the industry's 1.9% decline.
Concerns
While Hilton has delivered strong results in the second quarter, the current macroeconomic environment poses certain risks. Elevated inflation and interest rates have led to delays in new openings and developments. Additionally, challenging financing conditions in some regions could impact the company’s ability to access cash or secure new financing arrangements. Hilton’s management remains cautious and focused on mitigating these challenges while continuing to execute its growth strategy.
Our Thoughts
Hilton remains a strong stock to hold, thanks to impressive RevPAR performance, strategic expansion and growth in its lifestyle segment. The company's solid pipeline and recent outperformance against the industry declines highlight its positive trajectory.
However, potential investors should remain mindful of the economic headwinds, including elevated inflation, interest rates and the associated risks of delays in openings and development. HLT trades at a premium with a forward 12-month P/E ratio of 27.51X, compared to the industry average of 21.57X and higher than the median of 27.39X, indicating a stretched valuation. The stock's premium valuation adds to the risk-reward consideration.
Overall, Hilton’s growth prospects and strategic initiatives and the Zacks Rank #3 (Hold) justify retaining the stock.
Key Picks
Some better-ranked stocks in the Zacks Consumer Discretionary sector are as follows:
Royal Caribbean Cruises Ltd. (RCL - Free Report) currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
RCL has a trailing four-quarter earnings surprise of 18.5%, on average. The stock has rallied 59.9% in the past year. The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share (EPS) calls for growth of 18.1% and 69.9%, respectively, from the year-ago levels.
DoubleDown Interactive Co., Ltd. (DDI - Free Report) currently flaunts a Zacks Rank of 1. DDI has a trailing four-quarter earnings surprise of 22.1%, on average. The stock has surged 76.6% in the past year.
The Zacks Consensus Estimate for DDI’s 2024 sales and EPS indicates an increase of 12.6% and 15.8%, respectively, from the year-ago levels.
Monarch Casino & Resort, Inc. (MCRI - Free Report) carries Zacks Rank #2 (Buy). MCRI has a trailing four-quarter negative earnings surprise of 3.5%, on average. The stock has increased 13.1% in the past year.
The Zacks Consensus Estimate for MCRI’s 2024 sales and EPS indicates an increase of 2.3% and 10%, respectively, from the year-ago levels.