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Hilton (HLT) Stock Outpaces Industry YTD: More Upside Left?

Hilton Worldwide Holdings Inc. HLT is poised to benefit from unit expansion efforts, loyalty program and an asset-light business model. Also, strong leisure transient trends and steady recovery in business transient and group travel have been important factors for sales improvement over the last few quarters.

Shares of Hilton have gained 12.1% so far this year compared with the industry’s 10.4% growth. The price performance was backed by a solid earnings surprise history. Hilton’s earnings surpassed the Zacks Consensus Estimate in five of the trailing six quarters. Earnings estimates for full-year 2023 1.4%, in the past 60 days. 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

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 fourth-quarter 2022, Hilton opened 108 new hotels. It also achieved net unit growth of nearly 15,100 rooms. During the quarter, the company unveiled Hilton Garden Inn in Japan. It also expanded its rooms under the Home2 Suites and DoubleTree by the Hilton brand. For 2023, the company expects net unit growth to be in the range of 5-5.5%.

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Focus on Luxury Development & Conversions: Hilton continues progressing with its luxury development strategy. During the fourth quarter of 2022, the company boosted its luxury portfolio by opening Waldorf Astoria Cancun. The company announced nine new agreements to boost its luxury portfolio in the Asia Pacific region (including the Conrad, Singapore Orchard). Also, it emphasized the expansion of its luxury line-up with agreements in Malaysia, Waldorf and Morocco.

Apart from this, the company is emphasizing 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 fourth quarter of 2022, conversion openings represented nearly 24% of total openings. The company expects positive development trends to continue on the back of new development and conversion opportunities.

Emphasis on loyalty Program: One of the largest loyalty programs, Hilton Honors, created a precious asset for the company. Innovations like the Hilton Honors app continue to drive the program’s growth. As of Dec 31, 2022, the loyalty program had more than 152 million members. With membership levels increasing 19% year over year (as of fourth-quarter 2022), the company continues to focus on 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.

Capital-Light Business Model: Hilton transformed into a capital-light operating business backed by the spin-offs of a portfolio of hotels and resorts as well as its timeshare business. Post spinoff, the company expects to be a resilient, fee-driven business with disciplined strategies. In fact, the focus is expected to be on growing market share, units, free cash flow per share and preserving the company’s strong balance sheet and accelerating the return of capital. As Hilton’s unit growth is mostly financed by third parties, it is capable of generating substantial returns on minimal capital investment.

Signs of Recovery in Global Markets: Hilton is benefitting from strong leisure transient trends and steady recovery in business transient and group travel. During the fourth quarter, the company witnessed solid revenue per available room (RevPAR) gains in Europe, the Middle East and Africa owing to strong leisure demand and recovery in international inbound travel. Also, it reported meaningful recovery across Asia and solid growth in U.S. urban markets. The company anticipates the momentum to continue in the upcoming periods. For 2023, the company expects system-wide 2023 RevPAR to increase between 4% and 8% on a year-over-year basis.

Other Key Picks

Some other top-ranked stocks in the Zacks Consumer Discretionary sector are Cedar Fair, L.P. FUN, Hilton Grand Vacations Inc. HGV and Crocs, Inc. CROX.

Cedar Fair sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 64.5%, on average. The stock has declined 17.3% in the past year.

The Zacks Consensus Estimate for FUN’s 2024 sales and EPS indicates a rise of 2% and 6.5%, respectively, from the year-ago period’s estimated levels.  

Hilton Grand Vacations currently sports a Zacks Rank #1. HGV has a trailing four-quarter earnings surprise of 12.1%, on average. Shares of HGV have declined 8% in the past year.  

The Zacks Consensus Estimate for HGV’s 2023 sales and EPS indicates a rise of 7.1% and 10.8%, respectively, from the year-ago period’s levels.

Crocs sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 21.8%, on average. Shares of Crocs have increased 73.1% in the past year.

The Zacks Consensus Estimate for CROX’s 2023 sales and EPS indicates a rise of 12.5% and 2.5%, respectively, from the year-ago period’s levels.

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Crocs, Inc. (CROX) : Free Stock Analysis Report

Cedar Fair, L.P. (FUN) : Free Stock Analysis Report

Hilton Worldwide Holdings Inc. (HLT) : Free Stock Analysis Report

Hilton Grand Vacations Inc. (HGV) : Free Stock Analysis Report

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