This global hotelier beat analysts’ earnings estimates by ten cents last quarter, and eight analysts have increased their forecasts for the company in the past 30 days.
Hilton Worldwide Holdings Inc (HLT)
From Argus Weekly Staff Report
We are upgrading Hilton Worldwide Holdings Inc. (HLT) to BUY from HOLD and setting a price target of $96. We think that Hilton’s asset-light business model, in which it franchises rather than owns hotels, provides a competitive advantage that should result in above-peer-average earnings growth over time. The company also benefits from a strong brand, as evidenced by its industry-leading loyalty program, Hilton Honors, with approximately 85 million members. Some 60% of all reservations at Hilton hotels are booked by loyalty program members.
With 5% of existing rooms, and about 20% of rooms currently under development worldwide, Hilton is set to increase its global market share. In the U.S., where it has a low double-digit market share, Hilton’s is constructing about a quarter of the rooms currently under development. Through its large scale, Hilton provides franchisees with marketing and technology support that competitors cannot match.
Hilton continues to add rooms. The company’s construction pipeline rose to 364,000 in 4Q from 332,000 a year earlier. In its 4Q earnings release, Hilton forecast 1.0%-3.0% RevPAR growth in 2019 (down from a prior 2%-4%) and projected full-year adjusted earnings of $3.66-$3.78 per share. Management and franchise fees are still expected to increase 7%-9%. Hilton now projects full-year EBITDA of $2.24-$2.29 billion. It plans to allocate $1.3-$1.8 billion for dividends and share repurchases this year. Hilton projects 6.5% unit growth in 2019.
In 1Q19, management expects systemwide RevPAR to grow 1.0%-3.0% on a currency-neutral basis. It looks for adjusted EPS of $0.73-$0.78. Reflecting stronger-than-expected 2018 earnings, solid 2019 guidance, and positive earnings surprises in eight of the past nine quarters, we are raising our 2019 EPS estimate to $3.90 from $3.80 and our 2020 estimate to $4.40 from $4.30. Our long-term earnings growth rate forecast remains 15%, down from 18.6% over the past five years.
We think that Hilton’s asset-light business model, in which it franchises rather than owns hotels, provides a competitive advantage that should result in above-peer-average earnings growth over time.
Our long-term rating on HLT remains BUY based on the company’s solid development pipeline, new brands, and well-regarded loyalty program. We also expect earnings to benefit from the spinoff of the timeshare businesses and the sale of additional company-owned hotels.
HLT shares appear attractively valued at 21.4-times our revised 2019 EPS estimate, above the peer average of 18.0. We believe that this multiple inadequately reflects prospects for rising profitability from the company’s highly-regarded loyalty program; franchised, fee-based business model; and aggressive unit expansion plans. As such, our rating is now BUY, with a target price of $96. Our target, if achieved, implies a potential return of 15% including the dividend.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425-7500, March 22, 2019