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Hilton (HLT) Stock Up 22% in 6 Months: More Room to Run?

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Shares of Hilton Worldwide Holdings Inc. (HLT - Free Report) have gained 22% in the past six months, compared with the industry’s rally of 13.8%. The company continues to benefit from improving RevPAR, unit expansion, hotel conversions, strategic partnerships, loyalty program and digital efforts. However, the coronavirus pandemic continues to hurt the company’s performance. Let’s delve deeper.

Growth Drivers

The company has been benefiting from improving RevPAR. During the third quarter, system-wide comparable revenue per available room (RevPAR) increased 98.7% on a currency-neutral basis owing to an increase in occupancy and average daily rate (ADR). RevPAR improved 17 percentage points on a sequential basis. The uptrend was driven by a solid leisure demand in the United State and Europe. A rise in vaccination rates and consumer spending coupled with improving business activity contributed to the upside.

In a bid to maintain its position as the fastest-growing global hospitality company, Hilton has been pursuing unit growth. In 2020, Hilton 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 third quarter of 2021, Hilton opened 96 new hotels. It achieved net unit growth of nearly 11,200 rooms, up 6.6% on a year-over-year basis. During the quarter, the company opened the 500th hotel under its Home2 Suites by Hilton brand. The company announced the opening of three new hotels under LXR Hotels & Resorts.

Backed by strength in the Americas and Asia Pacific regions, the company reported a rise in new hotel signings in the third quarter. The company signed nearly 24,000 rooms, thereby increasing 40% year over year. For 2021, the company expects hotel signings to increase in the range of high single to low double-digits year over year.

As of Sep 30, 2021, Hilton's development pipeline comprised nearly 2,620 hotels, with nearly 404,000 rooms across 114 countries and territories — including 27 countries and territories where it currently does not have any running hotels. Moreover, 249,000 rooms in the development pipeline were located outside the United States and 204,000 rooms were under construction. For 2021, the company anticipates net unit growth in the range of 5% to 5.5%. It expects it to remain in the mid-single-digit range for the upcoming years as well.

Maintaining liquidity has become a herculean task during the pandemic. The company’s cash balance as of Sep 30, 2021 totaled $1.4 billion compared with $1.1 billion in the previous quarter.

The Zacks Rank #3 (Hold) company 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. With membership levels increasing 11% on a year-over-year basis (as of third-quarter 2021), the company continues to outline opportunities to engage its Honors members through enhanced partnerships and points redemption offerings.

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During third-quarter 2021, the company’s performance was negatively impacted by rising COVID-19 cases and prolonged travel restrictions, particularly in the Asia Pacific region. The company’s performance was tempered due to lockdowns in Australia and New Zealand. Although 99% of the properties are in operation, the company has been witnessing significantly lower occupancy rates compared with pre-pandemic levels. Due to the pandemic, RevPar are still lagging behind pre-pandemic levels.

Key Picks

Some better-ranked stocks in the Consumer Discretionary sector include Hilton Grand Vacations Inc. (HGV - Free Report) , Bluegreen Vacations Holding Corporation (BVH - Free Report) and Century Casinos, Inc. (CNTY - Free Report) .

Hilton Grand Vacations sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 411.1%, on average. Shares of the company have appreciated 62.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Hilton Grand Vacations’ 2022 sales and earnings per share (EPS) suggests growth of 27.7% and 154.4%, respectively, from the year-ago period’s levels.

Bluegreen Vacations flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 695%, on average. Shares of the company have soared 158.8% in the past year.

The Zacks Consensus Estimate for Bluegreen Vacations’ 2022 sales and EPS indicates a rise of 7.6% and 0.4%, respectively, from the year-ago period’s levels.

Century Casinos carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 758.9%, on average. Shares of the company have surged 87.2% in the past year.

The Zacks Consensus Estimate for Century Casinos’ 2022 sales and EPS suggests growth of 16.9% and 44.7%, respectively, from the year-ago period’s levels.