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Hilton (HLT) Banks on Unit Expansion Amid Low Occupancy Rates

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Zacks Equity Research
·4 min read
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Hilton Worldwide Holdings Inc. HLT is poised to benefit from unit expansion, hotel conversions and loyalty program. However, decline in occupancy rates and RevPAR on account of the coronavirus pandemic, pose concerns.

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

Factors Driving Growth

With restrictions being lifted and more than 97% of its properties operating, Hilton’s business is likely to pick up on improved demand post the summer period. The company is also likely to benefit from gradual improvement in travel demand.

Meanwhile, Hilton continues to focus on unit growth. As of Sep 30, 2020, Hilton's development pipeline comprised more than 2,640 hotels, with roughly 408,000 rooms across 121 countries and territories — including 33 countries and territories where it currently does not have any running hotel. Moreover, 237,000 rooms in the development pipeline were located outside the United States and 217,000 rooms were under construction. In 2020, the company anticipates net unit growth in the range of 4.5% to 5%.

Hilton’s broad geographic diversity lowers the effect of volatility in individual markets. More than 30% of the pipeline is located in the Asia Pacific region, where demand has been high. Notably, the company continues to make great progress in its luxury development strategy, anticipating double-digit luxury growth in the next several years.

Apart from this, the company is also 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 its 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.

Also, one of the largest loyalty programs, Hilton Honors, has created an extremely valuable asset for the company. As of Sep 30, 2020, the loyalty program had more than 110 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 5.5% compared with the industry’s 8% fall.

Concerns

The coronavirus pandemic has had a material adverse impact on the company’s results for the three months ended Sep 30, 2020. Although majority of the properties are in operation now, it is witnessing significantly lower occupancy rates than the pre-pandemic levels. Due to rise in coronavirus cases in Europe, the company’s positive summer momentum in the region has been hindered.

Moreover, the company is experiencing significant declines in revenue per available room (RevPAR) in all regions it serves. For the three months ended Sep 30, 2020, system-wide comparable RevPAR plunged 59.9% on a currency-neutral basis owing to a decline in occupancy and average daily rate.

Zacks Rank

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