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Hilton (HLT) Banks on Loyalty Program, Dismal RevPAR Hurts

Hilton Worldwide Holdings Inc. HLT will likely benefit from its loyalty program, luxury development initiatives and hotel conversion opportunities. Also, sequential improvements in RevPAR in terms of corporate transient and group businesses bode well. However, a decline in revenue per available room (RevPAR) from the pre-pandemic levels is a headwind.

Let’s delve deeper.

Growth Catalysts

One of the largest loyalty programs, Hilton Honors, created an extremely valuable asset for the company. Innovations such as the Hilton Honors app continue to drive the program’s growth. As of Mar 31, 2022, the loyalty program had more than 133 million members. With membership levels increasing 15% on a year-over-year basis (as of first-quarter 2022), the company continues to outline opportunities to engage its Honors members through enhanced partnerships and points redemption offerings. Hilton intends to focus on new opportunities to drive customer engagement to reach pre-pandemic levels.

Hilton continues to focus on its luxury development strategy to drive growth. During first-quarter 2022, the company made solid progress related to the Canopy brands. The company announced the opening of two new lifestyle hotels, including the Canopy by Hilton Boston Downtown and the Canopy by Hilton New Orleans Downtown. Backed by the strong openings, the company witnessed a sequential (and year over year) increase in its portfolio. HLT stated that it has 410,000 rooms in its development pipeline. Apart from this, the company emphasized on expanding its luxury and lifestyle portfolio with the signings of the Waldorf Astoria Sydney, the Conrad Austin Hotel & Residences and Canopy Properties in Cannes and Downtown Nashville. Going forward, the company remains optimistic about achieving a net unit growth of 5% in 2022 and anticipates recording 6-7% unit growth in the upcoming periods.

The company is focusing on hotel conversion opportunities to mitigate the impact of construction delays caused by the pandemic. During the first quarter of 2022, conversion signings were up 15% year over year and contributed nearly 20% to overall signings. During the quarter, the company signed conversion deals with Curio and Tapestry brands, covering destinations like the Galapagos Islands, San Sebastian, Spain, Maui and Sonoma County, California. The company stated progress related to the DoubleTree expansion with new conversion properties across France, Germany and the Netherlands. The company expects positive development trends to continue on the back of new development and conversion opportunities.

Shares of Hilton have declined 11.2% in the past year compared with the industry’s fall of 16.2%. The company benefitted from a rise in leisure demand coupled with a sequential improvement in RevPAR in terms of corporate transient and group businesses. During the first-quarter earnings call, the company stated to have witnessed positive development trends in April, with RevPAR tracking at roughly 95% of 2019 levels. Given the positive momentum coupled with attributes such as a strong job market, pent-up demand and easing of travel restrictions, the company expects to reach 2019 system-wide RevPAR levels during the third quarter of 2022. Also, it remains optimistic in terms of leisure RevPAR to exceed 2019 peak levels in 2022.

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Zacks Investment Research

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The coronavirus crisis has materially impacted the company’s operations during first-quarter 2022. During the quarter, the company’s performance was affected by Omicron-related demand pressures (in January and February). Travel restrictions and reimposed lockdowns in China added to the downside. Although most properties have lifted or eased restrictions, RevPar is still lagging behind pre-pandemic levels. In 2022, the company expects RevPAR to decline 5-9% from 2019 levels. We believe that the emergence of the new COVID-19 variants is likely to create volatility in demand.

Zacks Rank & Key Picks

Hilton currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Consumer Discretionary sector are Civeo Corporation CVEO, Funko, Inc. FNKO and Bluegreen Vacations Holding Corporation BVH.

Civeo sports a Zacks Rank #1 at present. The company has a trailing four-quarter earnings surprise of 1,565.1%, on average. Shares of the company have soared 38.4% in the past year.

The Zacks Consensus Estimate for CVEO’s 2022 sales and EPS suggests growth of 12.5% and 1,450%, respectively, from the year-ago period’s levels.

Funko sports a Zacks Rank #1 at present. FNKO has a trailing four-quarter earnings surprise of 78.7%, on average. Shares of the company have increased 7.5% in the past year.

The Zacks Consensus Estimate for Funko’s current financial year sales and EPS suggests growth of 26.8% and 31%, respectively, from the year-ago period’s reported levels.

Bluegreen Vacations flaunts a Zacks Rank #1. BVH has a trailing four-quarter earnings surprise of 85.9%, on average. The stock has surged 38.6% in the past year.

The Zacks Consensus Estimate for BVH’s current financial year sales and EPS indicates growth of 11.2% and 35.1%, respectively, from the year-ago period’s reported levels.

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