Hilton Worldwide Holdings Inc. HLT is poised to benefit from pent-up demand, unit expansion efforts, and an asset-light business model. Also, solid leisure transient trends and improving business activity have been important for sales improvement over the last few quarters.
Shares of Hilton have gained 20.4% so far this year compared with the industry’s 18.1% growth. The price performance was backed by a solid earnings surprise history. Hilton’s earnings surpassed the Zacks Consensus Estimate in all of the trailing seven quarters. Earnings estimates for 2023 and 2024 have increased 3.4% and 5% in the past 60 days, respectively. The positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy). This indicates robust fundamentals and expectations of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Major Growth Drivers
Strong Global Markets: Hilton benefits from strong demand growth in APAC, solid leisure transient trends and improving business activity. During the second quarter, the company witnessed solid revenue per available room (RevPAR) gains in Europe, the Middle East and Africa region, owing to solid leisure demand and recovery in international inbound travel. It also reported meaningful recovery across the Asia Pacific region. The company anticipates the momentum to continue in the upcoming periods. For 2023, the company expects system-wide 2023 RevPAR to increase between 10% and 12% year over year compared with the previous projection of 8% and 11%.
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Expansion Initiatives To Drive Growth: In a bid to maintain its position as the fastest-growing global hospitality company, Hilton continues to drive unit growth. During second-quarter 2023, Hilton opened 92 new hotels. It also achieved net unit growth of nearly 11,200 rooms. It also reported a solid expansion of Hilton Garden Inn with signings of approximately 3,700 HCI rooms in China. This apart, the company signed agreements for properties, including Tapestry Hotel (on the French Riviera) and Curio (in Croatia). For 2023, the company expects net unit growth to be approximately 5%.
Hotel Conversions: Hilton continues to focus on hotel conversion opportunities to drive growth. During the second quarter of 2023, the company reported solid conversions driven by strength in signings across Europe and Asia Pacific. The company reported strong developers' interest in the premium economy conversion brand — Spark by Hilton. During the first quarter of 2023, conversion represented nearly 1/3 of the U.S. signings. The company expects positive development trends to continue on the back of new development and conversion opportunities. Attributes of solid market opportunity, cost-efficient build and high-margin model will likely add to the positives.
Capital-Light Business Model: Hilton transformed into a capital-light operating business backed by the spin-offs of a portfolio of hotels and resorts and its timeshare business. Post-spinoff, the company expects to be a resilient, fee-driven business with disciplined strategies. The focus is expected to be on growing market share, units and free cash flow per share, preserving the company’s strong balance sheet and accelerating the return of capital. As third parties mainly finance Hilton’s unit growth, it can generate substantial returns on minimal capital investment.
Upbeat Views: For 2023, the company anticipates net income in the range of $1,387-$1,422 million. Earlier, it anticipated net income in the $1,331-$1,385 million band. Adjusted EBITDA is expected to be between $2,975 million and $3,025 million. The previous adjusted EBITDA was suggested to lie between $2,875 million and $2,950 million. The company expects 2023 EPS (adjusted for special items) in the range of $5.93-$6.06 compared with the previous projection of $5.68-$5.88.
Other Key Picks
Some other top-ranked stocks in the Zacks Consumer Discretionary sector are:
Royal Caribbean Cruises Ltd. RCL sports a Zacks Rank #1. RCL has a trailing four-quarter earnings surprise of 28.5% on average. Shares of RCL have gained 110.3% in the past year.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates a rise of 55.1% and 182.1%, respectively, from the year-ago period’s levels.
Live Nation Entertainment, Inc. LYV sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 34.6% on average. Shares of LYV have increased 1.5% in the past year.
The Zacks Consensus Estimate for LYV’s 2023 sales and EPS indicates a rise of 21% and 57.8%, respectively, from the year-ago period’s levels.
OneSpaWorld Holdings Limited OSW currently carries a Zacks Rank #2. OSW has a trailing four-quarter earnings surprise of 42.6% on average. Shares of OSW have increased 25.9% in the past year.
The Zacks Consensus Estimate for OSW’s 2023 sales and EPS indicates a rise of 44.5% and 117.9%, respectively, from the year-ago period’s levels.
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