Baird, a financial services company, raised its price target on Hilton Worldwide (NYSE: HLT) to $235.00, up from the previous $215.00, while maintaining an Outperform rating on the stock.
The adjustment reflects the analyst's continued positive outlook on Hilton's business model and its potential for long-term growth, despite acknowledging the need for earnings growth to maintain the stock's current momentum.
Hilton's shares are trading at a high multiple, specifically 30 times the projected 2025 earnings, which is at the upper end of their historic range, excluding the pandemic period. The analyst noted that Hilton's valuation is also at a roughly four-turn premium compared to its peer Marriott International (NASDAQ:MAR), outside of pandemic-affected periods, marking a historically wide gap.
The report also highlighted ongoing labor strikes at Hilton-managed hotels in the United States that began in early September. Currently, union workers are striking at six hotels in cities including Boston, San Francisco, Seattle, and Waikiki, with four experiencing indefinite strikes.
These labor disputes are particularly disruptive to large events and bookings, and the longer they last, the more significant the financial impact, especially for the property owners.
Two of the most affected hotels are the Hilton San Diego Bayfront and the Hilton Hawaiian Village, which are significant contributors to Hilton's revenue, generating an estimated $25-$30 million in annual management fees. The analyst incorporated a modest reduction in fees for the second half of 2024 into their model, due to the expected disruption from these strikes.
In other recent news, Hilton Worldwide Holdings (NYSE:HLT) Inc. has been at the forefront of several significant developments. The company reported an adjusted EBITDA of $917 million for the second quarter and a year-over-year increase in net unit growth of 6.1%. Hilton also announced a $1 billion offering in senior notes due 2033, aimed at bolstering general corporate purposes.
In labor news, around 2,000 employees at the Hilton Hawaiian Village initiated a strike amid stalled contract negotiations, as reported by the Unite Here Union. The workers intend to continue the strike until they secure new contracts. This labor dispute is part of a broader wave of actions affecting the hospitality industry.
On the analyst front, Goldman Sachs has initiated coverage on Hilton with a Buy rating, citing the company's potential for growth. Meanwhile, Morgan Stanley maintained an Overweight rating on Hilton shares, albeit with a slight adjustment to the price target to $233. These developments highlight Hilton's recent performance and changes in the broader economic outlook.
Despite a softer macro environment and a revision in its full-year revenue per available room (RevPAR) guidance, Hilton maintains a positive outlook. The company's portfolio has expanded beyond 8,000 hotels, and Hilton projects full-year net unit growth of 7% to 7.5%. This growth is fueled by strategic acquisitions, partnerships, and strong performance in various regions.
InvestingPro Insights
Hilton Worldwide's current financial metrics and market performance align with Baird's optimistic outlook. According to InvestingPro data, Hilton's revenue growth stands at 10.34% for the last twelve months as of Q2 2024, with a robust gross profit margin of 75.38%. This strong financial performance supports the analyst's positive view on Hilton's business model and growth potential.
InvestingPro Tips highlight that Hilton has been "aggressively buying back shares" and has achieved a "high return over the last year," with a one-year price total return of 53.86%. These factors contribute to the stock's current high valuation, trading at a P/E ratio of 47.5, which corroborates Baird's observation of Hilton trading at a high multiple.
The stock is currently trading near its 52-week high, with a price that is 99.26% of its 52-week high value. This aligns with Baird's caution regarding the stock's valuation being at or above historical highs.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Hilton Worldwide, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.