Hilton Earnings: Strong Fee and Development Growth Outshine Near-Term Demand Headwinds

We see two main takeaways from Hilton’s first-quarter results. First, the hotelier’s fee revenue growth of 14% in the quarter is tracking ahead of our preprint 9% forecast for the year, despite first-quarter revenue per available room, or revPAR, growth of 2% coming in at the low end of management’s 2%-4% guidance. Second, the company continues to hold an industry-leading brand, the primary source of its wide moat rating, evidenced by loyalty members booking 64% of room nights in the period (highest in the industry) and third-party hotels driving the room pipeline up 10% from a year ago. As a result, Hilton shares jumped 6% from near-term oversold conditions during April 24 trading. We plan to increase our $178 fair value estimate by a low-single-digit percentage due to raising our 2024 revenue fee growth estimate to 11% and the time value of money. That said, we see shares of this top-quality hotelier as overvalued.