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Bear of the Day: Hilton Worldwide (HLT)

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Hilton Worldwide Holdings (HLT - Free Report) is a hospitality company that owns, leases, manages, develops, and franchises hotels and resorts worldwide. Its development pipeline is comprised of over 2,570 hotels, and includes chains like Hilton, DoubleTree, Waldorf Astoria, Hampton, and Embassy Suites, among others.

The Coronavirus Impact

As the coronavirus pandemic continues to rock the global economy, the broader travel industry has been essentially brought to a standstill.

Hilton, like other hotel and travel stocks, have seen its share price plunge in the past few weeks. Shares of the hotel giant are down almost 37% year-to-date, while the S&P 500 is down 12.3% in comparison.

Like restaurants, retailers, and airlines, hospitality stocks are extremely exposed to the economic effects of COVID-19. In particular, Hilton has shuttered many of its properties, furloughed workers, and taken huge steps to try and preserve liquidity.

In March, Hilton announced that it would be cutting “non-essential” costs, like capital expenditures, its share buyback program (which it had been actually expanded by $2 billion earlier in the month), and its dividend payouts.

CEO Christopher Nassetta said that he won’t take any of his salary for the rest of 2020, while the rest of the executive team will take a 50% pay cut.

“[W]ith travel at a virtual standstill, operations have been suspended across many managed and franchised hotels, and those hotels that remain open have reduced services for guests because of decreased occupancy levels,” the company said in a press release.

Bottom Line

HLT is now a Zacks Rank #5 (Strong Sell). Five analysts have cut their full year earnings outlook, and the consensus estimate has fallen over two dollars from $4.18 to $2.61 a share.

 

Hilton Worldwide Holdings Inc. Price and Consensus

 

 

Hedge fund manager Bill Ackman went on CNBC last month and said that “Hilton is the canary in the coal mine,” meaning that the current problems that the hotel industry is facing should be seen as a warning for other industries.

But, Ackman also said he would be buying HLT as share prices declined.

Hilton is still a well-run company and a top-performing hotel chain, and boasts strong operating margins, cash flow, and balance sheet.

However, until the coronavirus pandemic begins to stabilize, it’s probably best to remain cautious and avoid hospitality stocks for the time being.

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