Hilton (HLT) Banks on Unit-Expansion Efforts, China Woes Stay

·4-min read

Hilton Worldwide Holdings Inc. HLT will likely benefit from a rise in leisure demand, recovery in international inbound travel and unit-expansion efforts. Also, focus on its loyalty program bodes well. However, the COVID environment in China remains a headwind.

Let’s delve deeper.

Growth Catalysts

Hilton is benefiting from solid revenue per available room (RevPAR) improvement. During the fourth quarter of 2022, system-wide comparable RevPAR increased 24.8% year over year (on a currency-neutral basis), owing to an increase in occupancy and average daily rate. Also, RevPAR was up 7.5% from 2019 levels. The upside was primarily backed by strong leisure transient trends and improving business activity. The company witnessed solid 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. Hilton anticipates system-wide 2023 RevPAR to increase between 4% and 8% on a year-over-year basis.

Hilton continues to drive unit growth to maintain its position as the fastest-growing global hospitality company. 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.

As of Dec 31, 2022, Hilton's development pipeline comprised nearly 2,820 hotels, with nearly 416,400 rooms across 118 countries and territories — including 30 countries and territories where it currently has no running hotels. Moreover, 243,500 rooms in the development pipeline were located outside the United States and 204,500 rooms were under construction. For 2023, the company expects net unit growth to be in the range of 5-5.5%.

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 150 million members. With membership levels increasing 19% on a year-over-year basis (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.

Concerns

Hilton — which shares space with Marriott International, Inc. MAR, Hyatt Hotels Corporation H and Choice Hotels International, Inc. CHH in the Zacks Hotels and Motels industry — has been affected by the coronavirus crisis. During the fourth quarter of 2022, the company’s operations were negatively impacted by COVID-19-related restrictions in China. During the quarter, RevPAR in China was down 37% from 2019 levels. Although most properties have lifted or eased restrictions, uncertainty related to pandemic-induced implications is a concern.

A Brief Review of the Other Stocks

Marriott is benefiting from its focus on expansion initiatives, digital innovation and the loyalty program. The company is gaining from the reopening of the international borders and leniency in travel restrictions. Marriott is consistently trying to expand its worldwide presence and capitalize on the demand for hotels in the international markets. Given a rebound in the global travel scenario, the company is focused on fostering engagement with its members. Attributes such as pent-up demand for all types of travel, the shift of spending towards experiences versus goods, sustained high levels of employment, lifting of travel restrictions and opening borders (in most markets) are likely to aid the company in the upcoming periods. Earnings estimates for 2023 have witnessed upward revisions in the past 60 days, depicting analysts’ optimism regarding the stock growth potential.

Hyatt is benefitting from a gradual increase in demand, new hotel openings and acquisition initiatives. Also, increased focus on asset-light platforms bodes well. During the fourth quarter of 2022, the company noted resilience in demand from leisure and business travelers alike. Going forward, the company is optimistic with respect to the Apple Leisure Group acquisition on account of robust business and technological optimization. Earnings estimates for 2023 have witnessed upward revisions in the past 60 days, depicting analysts’ optimism regarding the stock growth potential.

Choice Hotels is benefiting from continual expansion strategies through acquisitions and franchise agreements. Also, focus on the loyalty program bodes well. In 2022, the company awarded 590 domestic franchise agreements (representing an increase of 11% on a year-over-year basis. The company reported sequential increases in its business and group travel demand, driven by increased extended vacations, household relocations and temporary remote work assignments. The transition of leisure travel into mainstream business added to the positives. Backed by the positive trends and the segment-specific tailwinds, the company stated that RevPAR and adjusted EBITDA surpassed 2019 levels. The company anticipates the momentum to continue on the back of investments in infrastructure build and onshoring of the U.S. supply chain. Earnings estimates for 2023 have witnessed upward revisions in the past 60 days, depicting analysts’ optimism regarding the stock growth potential.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Marriott International, Inc. (MAR) : Free Stock Analysis Report

Hyatt Hotels Corporation (H) : Free Stock Analysis Report

Choice Hotels International, Inc. (CHH) : Free Stock Analysis Report

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

To read this article on Zacks.com click here.

Zacks Investment Research