Hilton Earnings: Owner and Traveler Demand for the Brand Remained Strong, but Macro Pressures Remain

Hilton’s HLT 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.

RevPAR grew across all types of travel, with leisure up 5% (at 129% of 2019′s level), business up 5% (107%), and group up 8% (ahead of 2019). RevPAR also increased across key regions, with the U.S. up 3%, Europe 11%, and Asia-Pacific 39%.

Our view that Hilton possesses the industry’s leading brand advantage, source of its narrow moat, was buoyed by its development update. Its pipeline lifted 10% to 457,300 rooms and represents a stout 39% of its existing base. More owners are moving to Hilton, with conversions expected to amount to around 30% of 2023 net unit openings, up from the prepandemic low-20s. And despite a tougher financing and building environment, Hilton expects 2023- and 2024-unit growth of 5% and 5.5%-6%, respectively, compared with our 5.1% and 5.4% forecast, which we don’t expect to change materially. The brand is also resonating with travelers, witnessed by Hilton’s loyalty program expanding 19% to 173 million members (second only to narrow-moat Marriott), equating to 64% of room nights (tops in the industry).

Profitability remains strong. EBITDA was $834 million, ahead of $790 million-$810 million guidance, and Hilton raised its 2023 forecast by $25 million at the midpoint to $3.025 billion-$3,045 billion. This tracks toward our view that Hilton will hold around a 30% EBITDA margin this year, up nicely from 24% in 2019.