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Hilton Banks on Expansion Initiatives, Dismal RevPAR Hurts

Zacks Equity Research
·4 min read

Hilton Worldwide Holdings Inc. HLT is likely to benefit from expansion initiatives, hotel conversions and digital efforts. Also, increased focus on the loyalty program bodes well. However, decline in occupancy rates and RevPAR on account of the coronavirus pandemic pose concerns.

Let us delve deeper into the factors that highlight why investors should hold on to the stock for the time being.

Growth Catalysts

In a bid to maintain its position as the fastest-growing global hospitality company, Hilton continues to drive unit growth. During second-quarter 2020, the company opened 60 new hotels. It also achieved net unit growth of roughly 5,500 rooms. Notably, the company has been making great progress with the luxury development strategy, anticipating double-digit luxury growth in the next few years.

Hilton’s broad geographic diversity lowers the effect of volatility in individual markets. More than half of the company’s pipeline is located outside the United States, while more than 30% of the pipeline is located in the Asia Pacific region, where demand has been high.

As of Jun 30, 2020, Hilton's development pipeline comprised more than 2,700 hotels, with more than 414,000 rooms throughout 121 countries and territories, including 35 countries and territories where it currently does not have any operational hotels. Moreover, 234,000 rooms in the development pipeline were located outside the United States and 222,000 rooms were under construction.

During second-quarter 2020, the company also signed several luxury deals, which include the Waldorf-Astoria Tokyo, Conrad Costa del Sol in Spain and Oceana in Santa Monica. It also entered into a management license agreement with Country Garden to launch and develop Home2 Suites properties in China. Notably, the company looks forward to boost this partnership in China’s market and produce as many as 1000 hotels over the upcoming periods.

Moreover, it is emphasising on hotel conversion opportunities to mitigate the impact of construction delays caused by the ongoing pandemic. In this regard, the company is witnessing positive momentum across Doubletree, Curio and Tapestry brands. Markedly, its industry leading brands, powerful commercial engines and innovative technology platforms are likely to prove beneficial in the years to come.

Meanwhile, Hilton continues to invest heavily in the digital platform to provide seamless and contactless experience to customers. Notably, features like digital check-in, room selection and the ability to message hotel team members through personal devices bode well with customers. Combined with its new approach toward cleaning and sanitation, these initiatives are likely to boost consumer confidence during the pandemic.

Also, one of the largest loyalty programs¬, Hilton Honors has created an extremely valuable asset for the company. As of Jun 30, 2020, the loyalty program had more than 108 million members. Notably, innovations such as the Hilton Honors app continue to drive growth of the program.

So far this year, shares of the company have fallen 18.5% compared with the industry’s 23.1% fall.

Concerns

The coronavirus pandemic materially impacted the company’s operations during second-quarter 2020. Notably, travel restrictions and stay-at-home directives have resulted in complete, as well as partial suspensions of hotel operations in many locations. As of Jul 31, 2020, the company temporarily suspended operations at 260 hotels. Although the majority of the properties are in operation now, it is witnessing significantly lower occupancy rates than the pre-pandemic levels.

Moreover, the company is experiencing significant declines in RevPAR in all regions served. For the three months ended Jun 30, 2020, RevPAR at comparable franchised properties and comparable managed properties declined 77.9% and 88.3%, respectively, owing to reduction in occupancy and average daily rate.

Hilton — which shares space with Marriott International, Inc. MAR, Hyatt Hotels Corporation H and Extended Stay America, Inc. STAY in the Zacks Hotels and Motels industry — has a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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