Here's Why You Should Retain Hilton (HLT) Stock For Now
Hilton's (HLT) focus on unit expansion and hotel reopening bodes well. However, dismal RevPAR due to the coronavirus pandemic is a concern.
Hilton Worldwide Holdings Inc. HLT is likely to benefit from expansion initiatives, luxury development strategy, hotel conversions and digital efforts. Also, focus on hotel reopenings bodes well. So far this year, shares of the company have gained 14.5% compared with the industry’s 3.6% growth. However, decline in occupancy rates and RevPAR compared with pre-pandemic levels are headwinds.
Let’s discuss the factors that highlight why investors should retain the stock for the time being.
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In a bid to maintain its position as the fastest-growing global hospitality company, Hilton continues to drive unit growth. During second-quarter 2021, the company opened 119 new hotels. Notably, the company reported net unit growth of nearly 17,800 rooms, up 7% on a year-over-year basis. For 2021, the company expects net unit growth in the range of 5-5.5%. Also, it expects the same to remain in the mid single-digit range for the upcoming years as well.
Hilton continues to progress in its luxury development strategy. During the second quarter, the company expanded its all-inclusive and luxury portfolios with the signings of three beachfront resorts in Mexico — Hilton Vallarta Riviera, Hilton Tulum and the Conrad Tulum. Apart from this, Hilton is focusing on hotel conversion opportunities to mitigate the impact of construction delays caused by the pandemic. During the quarter, the company recorded conversion signings of Conrad Chia Laguna Sardinia, the Conrad Shanghai and Hotel 1,000 LXR. Overall, conversion signings represented 40 hotels (or 30% of its total signings).
Although pandemic-induced restrictions and low travel resulted in the suspensions of operations at certain hotels during the six months ended June 30, 2021, reopenings have significantly outpaced suspensions during the second quarter. Some of the reopened properties include Palmer House Hilton, the Chicago Hilton and the Hilton San Francisco Union Square. Currently with operations of 95 hotels remained suspended (as of July 2021), the company expects complete resumption of operations by 2021 end.
Hilton Honors, the company’s loyalty program, has created an extremely valuable asset. During first-quarter 2021, the company (in collaboration with American Express) launched two new co-branded credit cards in Japan to boost membership offerings through Hilton Honors bonus points. With membership levels increasing on a year-over-year basis (as of second-quarter 2021), the company continues to outline opportunities to engage Honors members through enhanced partnerships and points redemption offerings.
During second-quarter 2021, the company’s performance was negatively impacted by rising COVID cases and prolonged travel restrictions particularly in the Asia Pacific region. Its performance was tempered due to lockdowns in India and travel restrictions across Japan. Although 99% of the properties are in operation, the company is witnessing significantly lower occupancy rates compared with pre-pandemic levels. Thanks to the crisis, RevPar are still lagging behind the pre-pandemic levels.
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 a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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