Hilton Worldwide Holdings Inc. HLT will likely benefit from a rise in leisure demand, luxury development initiatives and its loyalty program. However, a decline in revenue per available room (RevPAR) from the pre-pandemic levels is a headwind.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Shares of Hilton have gained 1.1% in the past three months against the industry’s 3.6% fall. The company benefitted from a rise in leisure demand and a sequential improvement in RevPAR in corporate transient and group businesses. During the second quarter of 2022, system-wide comparable revenue per available room (RevPAR) increased 54.3% year over year (on a currency-neutral basis), owing to an increase in occupancy and average daily rate (ADR). The company reported sequential improvements across all segments backed by strong leisure transient trends and improving business activity. Also, the company witnessed solid RevPAR gains in Europe, the Middle East and Africa because of easing travel restrictions and increased cross-border travel. The company anticipates system-wide 2022 RevPAR to increase between 37-43% (compared with the previous projection of 32-38%) on a year-over-year basis.
Hilton continues to progress in its luxury development strategy. During the second quarter of 2022, the company boosted its luxury portfolio with the openings of Conrad properties in Nashville and Sardinia. It also announced the opening of Conrad Los Angeles in California (July 2022). Apart from this, the company emphasized the expansion of its luxury line-up with the signings of the Waldorf Astoria Sydney and Waldorf Astoria Kuala Lumpur.
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Hilton is focused on hotel conversion opportunities to mitigate the impact of construction delays caused by the pandemic. The company has signed conversion deals with Curio and Tapestry, covering destinations like the Galapagos Islands, San Sebastian, Spain, Maui and Sonoma County, California. Also, it has progressed with DoubleTree expansion with new conversion properties across France, Germany and the Netherlands. During the second quarter of 2022, it unveiled Waldorf Astoria Washington D.C. under the conversion opening. The company expects positive development trends to continue on the back of new development and conversion opportunities.
One of the largest loyalty programs, Hilton Honors, created an extremely valuable asset for the company. Innovations like the Hilton Honors app continue to drive the program’s growth. As of Jun 30, 2022, the loyalty program had more than 139 million members. With membership levels increasing 17% on a year-over-year basis (as of second-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.
The coronavirus crisis has materially impacted the company’s operations during second-quarter 2022. During the quarter, strict COVID policies and lockdowns in Shanghai and Beijing put pressure on travel demand. Although most properties have lifted or eased restrictions, RevPar is still lagging behind pre-pandemic levels. In 2022, the company anticipates RevPAR to decline 1-5% from 2019 levels. Uncertainty related to pandemic-induced implications is a concern.
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 same space include Marriott Vacations Worldwide Corporation VAC, Hyatt Hotels Corporation H and Choice Hotels International, Inc. CHH.
Marriott Vacations sports a Zacks Rank #1. VAC has a trailing four-quarter earnings surprise of 13.9%, on average. The stock has declined 26.1% in the past year.
The Zacks Consensus Estimate for VAC’s current financial year sales and earnings per share (EPS) indicates an increase of 19.7% and 131.4%, respectively, from the year-ago period’s reported levels.
Hyatt carries a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 798.8%, on average. The stock has declined 1.8% in the past year.
The Zacks Consensus Estimate for H’s current financial year sales and EPS indicates growth of 89.1% and 113%, respectively, from the year-ago period’s reported levels.
Choice Hotels carries a Zacks Rank #2. CHH has a trailing four-quarter earnings surprise of 11.2%, on average. The stock has declined 17.5% in the past year.
The Zacks Consensus Estimate for CHH’s current financial year sales and EPS indicates growth of 25.3% and 21.7%, respectively, from the year-ago period’s reported levels.
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