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HLT or CHH: Which Hotel Stock is Better Placed at the Moment?
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The Hotel and Motels industry is currently grappling with challenges stemming from labor shortages, inflation, geopolitical concerns and lending (especially for new construction projects). Also, a sequential fall in occupancy and RevPAR is acting as a headwind.
Per STR, the U.S. hotel industry’s occupancy for the week ended Jun 3, 2023, came in at 61.6% compared with 66.8% for the week ended May 27. During this duration, RevPAR for U.S. hotels came in at $92.55 compared with $104.62 in the previous week. Occupancy and RevPAR were down 2.3% and 1%, respectively, from 2019 levels. Industry experts believe that the Memorial Day calendar shift and softer group bookings (on a sequential basis) have led to the downside. The Zacks Hotels and Motels industry has gained 15.2% this year compared with the S&P 500’s growth of 14.9%.
With an emphasis on cost-saving initiatives and investments in technology infrastructure, the industry as a whole has shown some resilience. The balance between maximizing hotel income and enhancing visitor happiness is still a top priority for hotel operators. They have also boosted the use of these digital tools to improve customer service, grow online package sales, enable self-service bookings, fortify infrastructure and make real-time offers. This will probably make it possible for hoteliers to stimulate growth in the upcoming periods, combined with an emphasis on pricing optimisation, franchise agreements and asset-light business models.
Shares of Hilton have gained 17.5% in the past year, while the same for Choice Hotels have declined 4.9%. The industry has gained 17.5% in the same time frame.
Shares of Hilton are benefiting from numerous strategic efforts to revive growth. The company is benefiting from unit expansion, hotel conversions, strategic partnerships and loyalty programs. The company expects positive development trends to continue on the back of new development and conversion opportunities. The company anticipates business and group travel demand to strengthen and boost its portfolio.
Estimated Earnings & Revenues
Arguably, earnings growth is of utmost importance for determining a stock’s potential as surging profit levels indicate strong prospects (and stock price gains).
For the current year, Hilton’s earnings per share (EPS) are expected to improve 19.8% year over year to $5.86. Moreover, year-over-year sales growth is expected at 12% for the current year. Choice Hotels’ current-year earnings are likely to increase 13.5% year over year to $5.98, while sales are likely to rise 10.7% year over year.
Fundamentals
To maintain its position as the fastest-growing global hospitality company, Hilton continues to drive unit growth. During first-quarter 2023, Hilton opened 64 new hotels and achieved net unit growth of nearly 5,300 rooms. It also reported solid expansion of Hilton Garden Inn with 14 new signings across six countries and announced the opening of the Canopy Toronto Yorkville. As of Mar 31, 2023, Hilton's development pipeline comprised 2,930 hotels, with nearly 428,100 rooms across 116 countries and territories, including 30 countries and territories where it currently has no running hotels. For 2023, the company expects net unit growth in the range of 5-5.5%.
Increased focus on hotel conversion opportunities bodes well. The company signed conversion deals with Curio and Tapestry, covering destinations like the Galapagos Islands, San Sebastian, Spain, Maui and Sonoma County, CA. In first-quarter 2023, conversion signings were up 24% on a year-over-year basis. The upside was backed by the rollout of its new brand launch, Spark by Hilton. HLT reported strong interest from developers concerning premium economy conversion brand. With more than 300 deals in hand (in various stages of negotiation), the company is optimistic in this regard and anticipates hotel openings in the later part of 2023.
Hilton Honors, the company’s loyalty program, created an extremely valuable asset. Innovations like the Hilton Honors app continue to drive the program’s growth. As of Mar 31, 2023, the loyalty program had more than 158 million members, up 19% year over year. During the quarter, the company stated that Honors members accounted for 62% of the occupancy, up 200 basis points year over year.
Choice Hotels relies heavily on expansion in domestic and international markets. As of Mar 31, the company's domestic and extended-stay domestic pipeline reached 925 hotels (approximately 89,000 rooms) and 475 hotels, up 11% and 28% on a year-over-year basis, respectively. The company's global pipeline increased 14% compared with the prior-year quarter’s levels, representing 988 hotels (over 96,000 rooms). The company’s Ascend brand recently announced agreements to support its coast-to-coast expansion in the United States. This property signings include Mayfair Hotel in New York; CityFlats Hotel properties in Grand Rapids and Port Huron, Michigan; and an 84-room property in Ellicottville, New York. The company also signed agreements for multiple locations in California including San Francisco and Livermore
Choice Hotels continues to focus on its loyalty program to drive growth. To this end, the company announced a collaboration with a trusted digital-asset marketplace — Bakkt. The initiative enables Choice Privileges loyalty members to unlock new redemption opportunities by converting their rewards points to cash and for purchasing Bitcoin. Also, it allows guests to transfer their points to a friend or even redeem them online or in-store through Apple Pay and Google Pay. Backed by solid revenue contributions along with new customer additions, the company is optimistic about growth in the upcoming periods.
Our Take
Our comparative analysis shows that Hilton has the edge over Choice Hotels in terms of share price appreciation and projected EPS growth rate. However, the fundamentals of these companies look solid. Taking all factors into account, we believe Hilton is slightly better positioned than Choice Hotels at the moment.
Royal Caribbean Cruises Ltd. (RCL - Free Report) sports a Zacks Rank #1. RCL has a trailing four-quarter earnings surprise of 26.4%, on average. Shares of RCL have gained 141.4% in the past year.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates a rise of 48.5% and 162.8%, respectively, from the year-ago period’s levels.
Trip.com Group Limited (TCOM - Free Report) flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 147.9%, on average. Shares of TCOM have increased 65% in the past year.
The Zacks Consensus Estimate for TCOM’s 2023 sales and EPS indicates a rise of 95.4% and 334.5%, respectively, from the year-ago period’s levels.
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HLT or CHH: Which Hotel Stock is Better Placed at the Moment?
The Hotel and Motels industry is currently grappling with challenges stemming from labor shortages, inflation, geopolitical concerns and lending (especially for new construction projects). Also, a sequential fall in occupancy and RevPAR is acting as a headwind.
Per STR, the U.S. hotel industry’s occupancy for the week ended Jun 3, 2023, came in at 61.6% compared with 66.8% for the week ended May 27. During this duration, RevPAR for U.S. hotels came in at $92.55 compared with $104.62 in the previous week. Occupancy and RevPAR were down 2.3% and 1%, respectively, from 2019 levels. Industry experts believe that the Memorial Day calendar shift and softer group bookings (on a sequential basis) have led to the downside. The Zacks Hotels and Motels industry has gained 15.2% this year compared with the S&P 500’s growth of 14.9%.
With an emphasis on cost-saving initiatives and investments in technology infrastructure, the industry as a whole has shown some resilience. The balance between maximizing hotel income and enhancing visitor happiness is still a top priority for hotel operators. They have also boosted the use of these digital tools to improve customer service, grow online package sales, enable self-service bookings, fortify infrastructure and make real-time offers. This will probably make it possible for hoteliers to stimulate growth in the upcoming periods, combined with an emphasis on pricing optimisation, franchise agreements and asset-light business models.
Leading hotel companies — Hilton Worldwide Holdings Inc. (HLT - Free Report) and Choice Hotels International, Inc. (CHH - Free Report) — are undertaking different initiatives to generate profits. With both companies carrying a Zacks Rank #3 (Hold), let’s analyze and find out the better option. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance and Valuation
Image Source: Zacks Investment Research
Shares of Hilton have gained 17.5% in the past year, while the same for Choice Hotels have declined 4.9%. The industry has gained 17.5% in the same time frame.
Shares of Hilton are benefiting from numerous strategic efforts to revive growth. The company is benefiting from unit expansion, hotel conversions, strategic partnerships and loyalty programs. The company expects positive development trends to continue on the back of new development and conversion opportunities. The company anticipates business and group travel demand to strengthen and boost its portfolio.
Estimated Earnings & Revenues
Arguably, earnings growth is of utmost importance for determining a stock’s potential as surging profit levels indicate strong prospects (and stock price gains).
For the current year, Hilton’s earnings per share (EPS) are expected to improve 19.8% year over year to $5.86. Moreover, year-over-year sales growth is expected at 12% for the current year. Choice Hotels’ current-year earnings are likely to increase 13.5% year over year to $5.98, while sales are likely to rise 10.7% year over year.
Fundamentals
To maintain its position as the fastest-growing global hospitality company, Hilton continues to drive unit growth. During first-quarter 2023, Hilton opened 64 new hotels and achieved net unit growth of nearly 5,300 rooms. It also reported solid expansion of Hilton Garden Inn with 14 new signings across six countries and announced the opening of the Canopy Toronto Yorkville. As of Mar 31, 2023, Hilton's development pipeline comprised 2,930 hotels, with nearly 428,100 rooms across 116 countries and territories, including 30 countries and territories where it currently has no running hotels. For 2023, the company expects net unit growth in the range of 5-5.5%.
Increased focus on hotel conversion opportunities bodes well. The company signed conversion deals with Curio and Tapestry, covering destinations like the Galapagos Islands, San Sebastian, Spain, Maui and Sonoma County, CA. In first-quarter 2023, conversion signings were up 24% on a year-over-year basis. The upside was backed by the rollout of its new brand launch, Spark by Hilton. HLT reported strong interest from developers concerning premium economy conversion brand. With more than 300 deals in hand (in various stages of negotiation), the company is optimistic in this regard and anticipates hotel openings in the later part of 2023.
Hilton Honors, the company’s loyalty program, created an extremely valuable asset. Innovations like the Hilton Honors app continue to drive the program’s growth. As of Mar 31, 2023, the loyalty program had more than 158 million members, up 19% year over year. During the quarter, the company stated that Honors members accounted for 62% of the occupancy, up 200 basis points year over year.
Choice Hotels relies heavily on expansion in domestic and international markets. As of Mar 31, the company's domestic and extended-stay domestic pipeline reached 925 hotels (approximately 89,000 rooms) and 475 hotels, up 11% and 28% on a year-over-year basis, respectively. The company's global pipeline increased 14% compared with the prior-year quarter’s levels, representing 988 hotels (over 96,000 rooms). The company’s Ascend brand recently announced agreements to support its coast-to-coast expansion in the United States. This property signings include Mayfair Hotel in New York; CityFlats Hotel properties in Grand Rapids and Port Huron, Michigan; and an 84-room property in Ellicottville, New York. The company also signed agreements for multiple locations in California including San Francisco and Livermore
Choice Hotels continues to focus on its loyalty program to drive growth. To this end, the company announced a collaboration with a trusted digital-asset marketplace — Bakkt. The initiative enables Choice Privileges loyalty members to unlock new redemption opportunities by converting their rewards points to cash and for purchasing Bitcoin. Also, it allows guests to transfer their points to a friend or even redeem them online or in-store through Apple Pay and Google Pay. Backed by solid revenue contributions along with new customer additions, the company is optimistic about growth in the upcoming periods.
Our Take
Our comparative analysis shows that Hilton has the edge over Choice Hotels in terms of share price appreciation and projected EPS growth rate. However, the fundamentals of these companies look solid. Taking all factors into account, we believe Hilton is slightly better positioned than Choice Hotels at the moment.
Stocks to Consider
Here are some better-ranked stocks in the Zacks Consumer Discretionary sector.
Royal Caribbean Cruises Ltd. (RCL - Free Report) sports a Zacks Rank #1. RCL has a trailing four-quarter earnings surprise of 26.4%, on average. Shares of RCL have gained 141.4% in the past year.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates a rise of 48.5% and 162.8%, respectively, from the year-ago period’s levels.
Trip.com Group Limited (TCOM - Free Report) flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 147.9%, on average. Shares of TCOM have increased 65% in the past year.
The Zacks Consensus Estimate for TCOM’s 2023 sales and EPS indicates a rise of 95.4% and 334.5%, respectively, from the year-ago period’s levels.