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Hilton (HLT) Banks on Unit Expansion, Dismal RevPAR Hurts

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Hilton Worldwide Holdings Inc. (HLT - Free Report) is likely to benefit from unit expansion, hotel conversions and loyalty program. This along with focus on luxury development strategy bodes well. Shares of Hilton have gained 13.5% so far this year compared with the industry’s 11.3% growth. However, decline in RevPAR and occupancy rates due to the coronavirus pandemic is a concern.

Let us delve into the factors that suggest that investors should hold on to the stock for the time being.

Factors Driving Growth

In a bid to maintain its position as the fastest-growing global hospitality company, Hilton continues to drive unit growth. During the first quarter 2021, the company opened 105 new hotels. Notably, the company reported net unit growth of 13,100 rooms, up 5.8% on a year-over-year basis. The openings include Virgin Hotel Las Vegas, Hilton Abu Dhabi Yas Island, Yucatan Resort Playa del Carmen and six properties along the California coast.

Moreover, Hilton continues to make great progress in its luxury development strategy. During first-quarter 2021, the company signed several deals to expand its portfolio of resorts. Notably, this includes expansion agreements of Waldorf Astoria and Canopy brands in Seychelles (with scheduled openings in 2023). Going forward, the company announced plans to launch LXR brand in Seychelles (with the opening of Mango House Seychelles) and Bali.

Apart from this, the company is emphasising on hotel conversion opportunities to mitigate the impact of construction delays caused by the ongoing pandemic. To this end, the company opened Waldorf Astoria, Monarch Beach Resort and the Hilton Vancouver Downtown through hotel conversions.

One of the largest loyalty programs, Hilton Honors, has created an extremely valuable asset for the company. During first-quarter 2021, the company (in collaboration with American Express) launched two new co-branded credit cards in Japan to boost membership offerings through Hilton Honors bonus points. Notably, this marks the first of a kind offering to customers outside the United States. This along with innovations such as the Hilton Honors app continue to drive growth of the program.

Concerns

The coronavirus pandemic materially impacted the company’s operations during first-quarter 2021. Notably, reinstated lockdowns and travel restrictions in Europe and Japan coupled with temporary hotel closures dented first-quarter performance. Although 97% of the properties are in operation, the company is witnessing significantly lower occupancy rates compared with pre-pandemic levels.

Moreover, the company is experiencing significant declines in revenue per available room (RevPAR) in all regions it serves. For the three months ended Mar 31, 2021, system-wide comparable revenue per available room (RevPAR) plunged 38.4% on a currency-neutral basis due to a decline in occupancy and average daily rate. Moreover, the metric declined 53% compared with 2019 levels.

Hilton — which shares space with Marriott International, Inc. (MAR - Free Report) , Hyatt Hotels Corporation (H - Free Report) and Extended Stay America, Inc. in the Zacks Hotels and Motels industry — carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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