Hilton Earnings: Solid Demand Driven by an Ongoing Desire To Travel and a Strengthening Brand

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.

Second-quarter travel demand improved at narrow-moat Hilton’s HLT brands, with its constant currency revenue per available room, or revPAR, up 12% (compared with 10%-12% guidance), representing 109% of 2019′s level versus 108% last quarter. RevPAR was up year over year across all brands and five reported regions, led by Asia-Pacific’s 79% growth, where China’s revPAR reached 103% of prepandemic marks. Hilton expects its third-quarter revPAR to post 4%-6% growth, despite tougher comparisons, aided by enduring leisure trips (revPAR at 126% of 2019′s level in the second quarter) and improving business (106%), group (100%), and international travel. Further, the hotelier sees 2023 revPAR lifting 10%-12% compared with 8%-11% previously, as consumers continue to prioritize travel. We plan to adjust our 8% 2023 revPAR forecast to just above 10%.

In our view, Hilton’s brand (source of its narrow moat) is increasingly resonating with owners and travelers. In fact, the hotelier signed a record 36,000 rooms in the quarter, driving its pipeline up 7% year over year to an industry-leading 440,900 rooms, accounting for 39% of its existing base. Also, its loyalty membership rose 20% to 165 million, with these individuals accounting for 64% of occupied rooms, up about 200 basis points. As a result, we plan to increase our 10-year average unit growth to 4.8% from 4.6%.

Profitability remains strong, evidenced by second-quarter EBITDA of $811 million, which surpassed Hilton’s guidance for $770 million-$790 million, amounting to 131% of 2019′s level versus 128% last quarter. Management increased its 2023 EBITDA target to $2.975 billion-$3.025 billion from $2.875 billion-$2.95 billion, and we expect our $2.91 billion estimate to gravitate to within the new range, driven by slightly higher revPAR forecasts for the year.