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Here's Why You Should Hold on to Hilton (HLT) Stock Now

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Hilton Worldwide Holdings Inc. (HLT - Free Report) is poised to benefit from robust expansion strategies, industry-leading loyalty program along with an asset-light business model.

In first-quarter 2021, Hilton’s earnings and revenues missed the Zacks Consensus Estimate. The company’s operations by affected by pandemic-related travel restrictions in Europe and Japan as well as temporary hotel closures. However, the company is optimistic on the back of ramped-up vaccination drives and reopening strategies.

So far this year, shares of Hilton have gained 6.9% compared with the Zacks Hotels and Motels industry’s 4.4% rally.

Factors Driving Growth

Hilton is one of the fastest-growing global hospitality companies and is continuing to drive unit growth. The company opened nearly 410 new hotels. It achieved net unit growth of 56,000 rooms, marking an improvement of 5.1% from the prior-year quarter. During the first quarter of 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.

During first-quarter 2021, the company signed several deals to expand its portfolio of resorts. During the quarter, 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. During first-quarter 2021, the company reported openings of its 100th Curio Collection and 50th Tapestry Collection. Overall, conversions accounted for 24% of additions in the first quarter of 2021.

With restrictions being lifted and more than 97% of its properties operating, Hilton’s business is likely to pick up on improved demand post the summer period. The company is also likely to benefit from gradual improvement in travel demand owing to accelerated vaccine distributions as well as ease in government restrictions. The company expects reopening of all systemwide rooms by second-quarter 2021.

Hilton has transformed into a capital-light operating business backed by the spin-offs of a portfolio of hotels and resorts as well as its timeshare business. Post-spinoff, the company expects to be a resilient, fee-driven business with disciplined strategies. In fact, the focus is expected to be on growing market share, units, free cash flow per share as well as preserving the company’s strong balance sheet and accelerating return of capital.

Hilton has created one of the largest loyalty programs — Hilton Honors. With more than 115 million members, this network created an extremely valuable asset for the company. In the meantime, innovations such as the Hilton Honors app continue to drive growth. Meanwhile, during the first quarter of 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.

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Concerns

Hilton’s results for the three months ended Mar 31, 2021 have been materially impacted as the Hotels and Motels industry is currently grappling with the coronavirus outbreak-led difficulties. Notably, reinstated lockdowns and travel restrictions in Europe and Japan coupled with temporary hotel closures weighed on its first-quarter performance. Although 97% of the properties are in operation, the company is witnessing significantly lower occupancy rates compared with pre-pandemic levels.

During the first quarter, the company experienced significant declines in RevPAR across all regions, primarily due to a decline in occupancy resulting from the COVID-19 pandemic. RevPAR was down across all regions, with the weakest results in Europe. 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 (ADR). Moreover, the metric declined 53% from 2019 levels.

Zacks Rank

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

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