LRT Capital on Hilton Worldwide (HLT): “HLT’s Shares are Undervalued at 31.72x Forward Earnings”
LRT Capital Management, an investment management firm, published its first-quarter 2021 investor letter – a copy of which can be downloaded here. A net return of +5.12%% was recorded by the LRT Economic Moat strategy for the Q1 of 2021, while the LRT Market Neutral strategy returned +2.4% for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
LRT Capital Management, in its Q1 2021 investor letter, mentioned Hilton Worldwide Holdings Inc. (NYSE: HLT), and shared their insights on the company. Hilton Worldwide Holdings Inc. is a McLean, Virginia-based hospitality company that currently has a $35 billion market capitalization. Since the beginning of the year, HLT delivered a 12.89% return, extending its 12-month returns to 58.37%. As of May 27, 2021, the stock closed at $126.27 per share.
Here is what LRT Capital Management has to say about Hilton Worldwide Holdings Inc. in its Q1 2021 investor letter:
"Hilton is the second largest hotel company in the world after Marriott International (MAR). The company owns a portfolio of brands from the low end (Hampton Inn, Hilton Garden Inn), through the mid-tier (DoubleTree, Hilton, Curio, Embassy Suites, Homewood Suites), to the luxury high end (Waldorf Astoria, Conrad, LXR). Hilton’s portfolio is almost perfectly balanced between the three categories, while the majority (73%) of the company’s EBITDA geographic exposure is in the United States with Asia Pacific and Europe each contributing another 10%. Hilton today is almost exclusively a manager and franchisor of hotels, not a hotel owner. The company owns 61 hotels, manages 715 and franchises 5,702 – in total 6,478 properties with over 1 million combined rooms.8 Like all franchise based businesses Hilton requires very little capital to grow as it utilizes the investment capital of its hotel-owners/partners to expand. Hilton currently faces a difficult operating environment due to the covid-19 pandemic and uncertainty about the future of business travel. However, the company is an excellent operator with a somewhat leveraged capital structure – if pent-up demand for travel materializes post-Covid, as we expect it will, the company will quickly go from losing money to raking in profits.
Hilton last reported earnings on February 17th, with both top and bottom line disappointing investment analysts’ expectations. However, these poor results are not indicative of the company’s long-term outlook. In normal times, Hilton generates prodigious free cash flow which we expect will resume once travel demand returns. Over the longer term we expect Hilton to grow its topline at least twice as fast as GDP due to rising revenues per room and the growing number of rooms. Most importantly, the industry continues to consolidate with chain branded hotels taking market share from independent operations. With the superior marketing and loyalty programs offered by hotel chains (Hilton Honors has 112 million members) driving demand, independent hotel owners see the benefits of signing up with one of the dominant hotel chains (Hilton, IHG and Marriott). Furthermore, the company’s main growth opportunities remain abroad, as hotel chain penetration remains much lower outside the United States. Shares are up 9.34% year-to-date. We believe the shares are undervalued at 31.72x forward earnings."
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Our calculations show that Hilton Worldwide Holdings Inc. (NYSE: HLT) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, Hilton Worldwide Holdings Inc. was in 47 hedge fund portfolios, compared to 60 funds in the fourth quarter of 2020. HLT delivered a 1.57% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
