Hilton Up 50% in the Past Year: What's Driving the Stock?

Shares of Hilton Worldwide Holdings Inc. HLT have surged 49.5% in the past year compared with the industry's 32.7% growth. The company has been benefiting from solid leisure demand, group business improvements and digital initiatives. Also, strength in hotel signings and new developments bode well. However, rising interest rates and elevated inflation are a concern.
Let us discuss the factors that highlight why investors should retain the stock.

Growth Catalysts

Hilton is benefiting from solid revenue per available room (RevPAR) improvement. During first-quarter 2024, system-wide comparable RevPAR rose 2% year over year (on a currency-neutral basis) owing to an increase in occupancy and average daily rate. The upside was primarily backed by strong international and group trends and improving business activity. The company witnessed substantial RevPAR gains in Europe, Asia Pacific, the Middle East and Africa region, owing to strong leisure demand and recovery in international inbound travel. The company anticipates the momentum to persist for some time.

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The company is consistently utilizing cutting-edge technology platforms to enhance guest experiences and drive growth. This includes features such as a digitally-empowered concierge service for luxury brands, the option to select rooms based on floor plans and the ability to manage in-room entertainment via mobile devices, offering fully-integrated digital experiences. Recent initiatives like add-ons, Hilton for Business and enhanced search capabilities are also contributing to increased conversion rates and revenue generation.
Hilton continues to drive unit growth to maintain its position as the fastest-growing global hospitality company. During first-quarter 2024, HLT opened more than 100 hotels, adding around 17,000 rooms, with a net unit growth of 5.6%. Around 30% of the openings were conversions, primarily led by Double Tree and Spark.
During the first quarter, the company secured agreements for 30,000 rooms, reflecting a rise of 2% from the previous quarter's tally and a 10% increase from the same-period figures last year. Signings surpassed expectations, largely due to robust performance in international markets. In the Asia-Pacific region, agreements were reached for four new Conrad properties, enhancing the luxury portfolio. The company reported a significant interest in Hilton Garden Inn, with the brand achieving its highest quarter of signings to date.
In 2024, the company expects net unit growth to accelerate to the higher end of 6% to 6.5%, with the potential for additional upside from an exclusive partnership with Small Luxury Hotels of the World.

Concerns

Hilton is navigating uncertainties in financial markets due to liquidity constraints. Financing conditions have become challenging in some regions due to increasing interest rates, while elevated inflation levels are additional concerns. Hilton is cautious amid the uncertain macroeconomic environment, recognizing potential challenges in accessing cash and arranging new financing. The company does not entirely dismiss the possibility of delays in openings and new developments as it faces these headwinds.

Zacks Rank & Key Picks

Hilton currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector are:
Strategic Education, Inc. STRA currently sports a Zacks Rank #1 (Strong Buy).
STRA has a trailing four-quarter earnings surprise of 36.2%, on average. The stock has surged 48.5% in the past year. The Zacks Consensus Estimate for STRA's 2024 sales and earnings per share EPS indicates an increase of 6.4% and 33.3%, respectively, from the year-ago levels.
Royal Caribbean Cruises Ltd. RCL currently sports a Zacks Rank of 1. RCL has a trailing four-quarter earnings surprise of 18.3%, on average. The stock has rallied 91.9% in the past year.
The Zacks Consensus Estimate for RCL's 2024 sales and EPS calls for growth of 16.6% and 61.9%, respectively, from the year-ago levels.
Hasbro, Inc. HAS presently flaunts a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 17.5%, on average. The stock has gained 22.4% in the year-to-date period.
The Zacks Consensus Estimate for HAS' 2025 sales and EPS suggests an improvement of 4% and 14%, respectively, from the year-ago levels.

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