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Here's Why You Should Add Hilton (HLT) to Your Portfolio Now

Zacks Equity Research

Hilton Worldwide Holdings Inc. HLT, with its enormous scale, size, commercial platform and industry-leading brands, is currently one of the best-performing stocks in the hotel industry.

Hilton’s shares have gained 6.2% over the past six months against the industry’s decline of 0.6%. The appreciation in share price can be attributed to the company’s better-than-expected earnings in eight of the trailing nine quarters. In the trailing four quarters, Hilton’s earnings surpassed the Zacks Consensus Estimate, the average beat being 6.3%.

Moreover, Hilton not only flaunts a Zacks Rank #1 (Strong Buy) but also has a Momentum Score of B, which, per our model, indicates that the company is a good investment pick at the moment.

You can see the complete list of today’s Zacks #1 Rank stocks here.

 


Let us delve deeper into factors that make the company a prudent investment choice now.

Expansion — Key Growth Driver

In a bid to maintain its position as the fastest-growing global hospitality company, Hilton is continuing to drive unit growth.  During the fourth quarter of 2018, it opened 142 hotels, taking the total room count to 22,500. It also achieved net unit growth of 19,000 rooms, indicating roughly 7% increase from the prior-year quarter. During 2018, Hilton launched over 450 hotels, taking room count to more than 66,000, and achieved net unit growth of nearly 57,000 rooms, marking a 10% increase from the same period of 2017.

The company continues to make great progress in its luxury development strategy, anticipating double-digit luxury growth in the next several years. Hilton’s new brands — including Home2 Suites, Tru by Hilton and Tapestry Collection — are also gaining momentum globally.

During the third quarter, the company introduced an urban lifestyle brand called Motto by Hilton. In the fourth quarter, this hospitality chain welcomed Waldorf Astoria Atlanta Buckhead, which fortified the company’s presence in the East Coast. This brought the total luxury and lifestyle portfolio to 73 properties globally, with another 73 in the pipeline.

We believe that continual expansion is Hilton’s major way of driving revenues. The company anticipates net unit growth of 6.5% in 2019. Subsequently, the Zacks Consensus Estimate for revenues in 2019 is pegged at $9.6 billion, reflecting a 7.2% increase from 2018.

Capital-Light Business to Aid Earnings

Hilton transformed into a capital-light operating business, backed by spin-offs of a portfolio of hotels and resorts as well as its timeshare business. The company’s focus is on growing market share, units and free cash flow per share as well as preserving its strong balance sheet and accelerating return of capital.

Furthermore, as Hilton’s unit growth is mostly financed by third parties, it is capable of generating substantial returns on minimal capital investment. This asset-light model is expected to allow shareholders to receive high returns on invested capital.

It is also minimizing costs of capitals and facilitating earnings growth. For 2019, the Zacks Consensus Estimate pegs earnings at $3.76, reflecting a 34.8% year-over-year increase.

Strong Loyalty Program Fends Off Competition

Hilton created one of the largest loyalty programs, Hilton Honors. With more than 85 million members, this network created an extremely valuable asset for the company. In 2018, more than 14 million members were added to Hilton Honors. In the meantime, innovations such as the Hilton Honors app continue to drive growth for the program. In fact, the loyalty program increased occupancy in 2018 by 20%. The Honors now account for roughly 60% of system-wide occupancy, which is up 200 basis points for the year.

The robust loyalty program also helps Hilton to fend off intense competition from other major hotel chains like Marriott MAR and Hyatt H as well as small hospitality providers like Extended Stay STAY.

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Hilton Worldwide Holdings Inc. (HLT) : Free Stock Analysis Report
 
Extended Stay America, Inc. (STAY) : Free Stock Analysis Report
 
Marriott International (MAR) : Free Stock Analysis Report
 
Hyatt Hotels Corporation (H) : Free Stock Analysis Report
 
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