Company Reports

Hilton’s strong upper scale and luxury presence are strengthening its brand intangible asset, one of the sources of its wide moat. The firm is set to expand by several hundred hotels with its February 2024 Small Luxury Hotels partnership and its April 2024 acquisition of a majority interest in the Nomad brand. Hilton's emerging midscale brand (Spark by Hilton, launched in 2023); its extended-stay offering that it also launched in 2023 (LivSmart Studios); and the acquisition of Graduate Hotels, scheduled to close in second-quarter 2024, all support its pricing prowess. In fact, both Hilton's premium economy/midscale brand Spark and extended-stay concept LivSmart already have a few hundred partners in negotiations to join the company's portfolio. Long term, Spark has the potential to reach a few thousand units, offering an attractive unit growth catalyst for the company.

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.

Details from Hilton's investor day presentation confirm our thesis that the company holds an industry-leading brand intangible asset, the primary source of its wide moat rating. We maintain our $178 fair value estimate, leaving shares, which are trading around 18 times forward enterprise value/EBITDA versus 16 in prepandemic years, somewhat overvalued.

Hilton’s brand intangible asset (which underlies its wide moat rating) is strengthening, aided by its strong upper scale and luxury presence, which is set to expand by several hundred hotels with its February 2024 Small Luxury Hotels partnership. This higher-end price point prowess is augmented by emerging midscale (Spark brand launched in 2023) and extended-stay offerings (LivSmart also released in 2023). In fact, both Hilton's premium economy/midscale brand Spark and extended-stay concept LivSmart already have a few hundred partners in negotiation to join the company's portfolio. Long term, Spark has the potential to reach a few thousands units, offering an attractive unit growth catalyst for the company.

Hilton’s fourth-quarter results and forward outlook once again showcase that its brand (source of its wide moat) is resonating with travelers and owners. We think Hilton’s industry competitive position is among the strongest, and we would not require much discount to our $177 fair value estimate, which we don’t plan to materially change, to view shares as attractive.

We have upgraded Marriott, Hilton, and InterContinental’s moats to wide from narrow due to lasting brand edges for each. As a result of longer periods of economic profit in our discounted cash flow models, our fair value estimates increase to $217 from $190 for Marriott, $177 from $159 Hilton, and $84/GBX 6,600 from $74/GBX 6,100 for InterContinental.

Hilton’s brand intangible asset (which underlies its wide moat rating) is strengthening, aided by its strong upper scale and luxury presence, which is augmented by emerging midscale (Spark brand launched in 2023) and extended-stay offerings (LivSmart also released in 2023). In fact, both Hilton's premium economy/midscale brand Spark and extended-stay concept LivSmart already have a few hundred partners in negotiation to join the company's portfolio. Long term, Spark has the potential to reach a few thousands units, offering an attractive unit growth catalyst for the company.

Hilton’s third quarter posted strong demand with its revenue per available room, or revPAR, up 7%, ahead of our 5% forecast, driven by all segments and key regions. As a result, Hilton raised its 2023 revPAR growth target to 12%-12.5% from 10%-12%, and we plan to lift our 10.7% toward the low end of the new range. While we have been steadfast on travel demand resiliency since the summer of 2020, we expect Hilton’s revPAR growth to decelerate to 2%-3% in 2024 (down from our 4% prior forecast), driven by mounting headwinds, such as lasting inflation and depleted consumer savings. We plan to hold Hilton’s $159 fair value estimate.

While inflation and tightening credit availability present headwinds to industry travel demand in the near term, Hilton’s brand intangible asset (which underlies its narrow moat rating) is strengthening, along with resilient travel demand, aided by industry tailwinds—the human-ingrained desire to travel, China's reopening, and remote work flexibility. We expect Hilton's room share expansion to be among the industry's fastest over the next decade because of an industry-leading pipeline, favorable next-generation traveler position supported by newer brands (including its premium economy brand, Spark, launched in January of 2023), and its highly rated loyalty program. The company currently has mid-single-digit share of global hotel rooms with 15%-20% share of all industry pipeline rooms under construction. Further, its U.S. (69% of total 2022 hotel room count) share of existing rooms is low double digits, with a pipeline share of rooms under construction at 20%-25%. We see Hilton's room growth averaging mid-single digits over the next decade, above the 1%-2% long-term supply increase we estimate for the U.S. industry, implying market share gains ahead for Hilton.

While inflation and tightening credit availability present headwinds to industry travel demand in the near term, Hilton’s brand intangible asset (which underlies its narrow moat rating) is strengthening, along with resilient travel demand, aided by industry tailwinds—the human-ingrained desire to travel, service consumption normalization, China's reopening, and remote work flexibility. We expect Hilton's room share expansion to be among the industry's fastest over the next decade because of an industry-leading pipeline, favorable next-generation traveler position supported by newer brands (including its premium economy brand, Spark, launched in January of 2023), and its highly rated loyalty program. The company currently has mid-single-digit share of global hotel rooms with 15%-20% share of all industry pipeline rooms under construction. Further, its U.S. (69% of total 2022 hotel room count) share of existing rooms is low double digits, with a pipeline share of rooms under construction at 20%-25%. We see Hilton's room growth averaging mid-single digits over the next decade, above the 1%-2% long-term supply increase we estimate for the U.S. industry, implying market share gains ahead for Hilton.

We plan to lift our $152 per share fair value estimate toward $160 due to slightly higher 2023 demand and intermediate-term unit growth, leaving shares slightly undervalued.

While inflation, a softening labor market, and tightening credit availability present headwinds to industry travel demand in the near term, Hilton’s brand intangible asset (which underlies its narrow moat rating) is strengthening, along with resilient travel demand, aided by industry tailwinds—the human-ingrained desire to travel, service consumption normalization, China's reopening, and remote work flexibility. We expect Hilton's room share expansion to be among the industry's fastest over the next decade because of an industry-leading pipeline, favorable next-generation traveler position supported by newer brands (including its premium economy brand, Spark, launched in January of 2023), and its highly rated loyalty program. The company currently has mid-single-digit share of global hotel rooms with 15%-20% share of all industry pipeline rooms under construction. Further, its U.S. (69% of total 2022 hotel room count) share of existing rooms is low double digits, with a pipeline share of rooms under construction at 20%-25%. We see Hilton's room growth averaging mid-single digits over the next decade, above the 1%-2% long-term supply increase we estimate for the U.S. industry, implying market share gains ahead for Hilton.

While inflation, a softening labor market, and tightening credit availability present headwinds to industry travel demand in the near term, Hilton’s brand intangible asset (which underlies its narrow moat rating) is strengthening, along with resilient travel demand, aided by industry tailwinds—the human-ingrained desire to travel, service consumption

Demand for Hilton's brands remained resilient in the first three months of 2023, with revenue per available room, or revPAR, coming in at 101% of 2019's level (108% in constant currency). This result was slightly above our 100% prognosis and the prior quarter's 100%. We expect strong demand to hold through 2023. That said, year-over-year comparisons get difficult the rest of 2023, and we remain vigilant around macro risks (higher inflation, softening labor markets, tightening credit availability) that could place pressure on travel demand. Still, Hilton has not seen any signs of weakening demand, and, in fact, raised its 2023 constant currency revPAR growth guidance to 8%-11% from 4%-8% prior. We don't expect to make much change to our $150 per share fair value estimate and view shares as fairly valued.

While inflation presents a headwind to industry travel demand in the near term, Hilton’s brand intangible asset (which underlies its narrow moat rating) is strengthening, along with improving travel demand, aided by industry tailwinds—the human-ingrained desire to travel, service consumption normalization, and remote work flexibility. We expect Hilton's room share expansion to be among the industry's fastest over the next decade because of an industry-leading pipeline, favorable next-generation traveler position supported by newer brands (including its premium economy brand, Spark, launched in January of 2023), and its highly rated loyalty program. The company currently has mid-single-digit share of global hotel rooms with 15%-20% share of all industry pipeline rooms under construction. Further, its U.S. (69% of total 2022 hotel room count) share of existing rooms is low double digits, with a pipeline share of rooms under construction at 20%-25%. We see Hilton's room growth averaging mid-single digits over the next decade, above the 1.8% long-term supply increase we estimate for the U.S. industry, implying market share gains ahead for Hilton.

We expect Hilton’s $142 fair value estimate to lift by a mid-single-digit percentage, driven by lower expenses and time value. Although we view Hilton’s brands (source of its narrow moat) among the strongest in the industry, we see shares as appropriately valued trading at 17 times 2023 EV/EBITDA.

While the coronavirus pandemic and inflation present headwinds to industry travel demand in the near term, Hilton’s brand intangible asset (which underlies its narrow moat rating) is strengthening, along with improving travel demand, aided by industry tailwinds—pent-up demand, service consumption normalization, and remote work flexibility. We expect Hilton's room share expansion to be among the industry's fastest over the next decade because of an industry-leading pipeline, favorable next-generation traveler position supported by newer brands, and its highly rated loyalty program. The company currently has mid-single-digit share of global hotel rooms with 15%-20% share of all industry pipeline rooms under construction. Further, its U.S. (70% of total 2021 room count) share of existing rooms is low double digits, with a pipeline share of rooms under construction at 20%-25%. We see Hilton's room growth averaging mid-single digits over the next decade, above the 1.8% supply increase we estimate for the U.S. industry, implying market share gains ahead for Hilton.

Narrow-moat Hilton’s third-quarter performance once again tracked ahead of company guidance, with commentary for strong travel levels to endure the rest of the year. We acknowledge the uncertain economic outlook but think Hilton's demand can navigate higher in 2023 even if a mild recession occurs, stoked by desire to travel, remote work flexibility, and service consumption wallet share. We plan to increase our $136 fair value estimate by a low-single-digit percentage to account for stronger profitability. We view the shares as near an appropriate valuation.

Despite enduring travel demand into the fall of 2022 and our view that it can continue into 2023, investor concerns around future trips and credit availability have grounded share price performance across the industry. As a result, we see meaningful opportunities to book investment stays in Sabre, Accor, Booking Holdings, and Norwegian, which trade at 64%, 42%, 44%, and 54% discounts to our $15, EUR 37.50, $2,900, and $28 fair value estimates, respectively.

While the coronavirus pandemic and inflation present headwinds to industry travel demand in the near term, Hilton’s brand intangible asset (which underlies its narrow moat rating) is strengthening, along with improving travel demand in 2022. We expect Hilton's room share expansion to be among the industry's fastest over the next decade because of an industry-leading pipeline, favorable next-generation traveler position supported by newer brands, and its highly rated loyalty program. The company currently has mid-single-digit share of global hotel rooms with 15%-20% share of all industry pipeline rooms under construction. Further, its U.S. (70% of total 2021 room count) share of existing rooms is low double digits, with a pipeline share of rooms under construction at 20%-25%. We see Hilton's room growth averaging mid-single digits over the next decade, above the 1.8% supply increase we estimate for the U.S. industry, implying market share gains ahead for Hilton.