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Hilton (HLT) Hits 52-Week High: Is Further Upside Left?

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Shares of Hilton Worldwide Holdings Inc. (HLT - Free Report) hit a new 52-week high of $106.42 on Nov 27, eventually closing a tad lower at $106.37, gaining 1% during the trading session.

So far this year, shares of Hilton have gained 48.1%, broadly outperforming the industry’s 29.1% growth. Notably, aggressive expansion strategies, industry-leading loyalty program coupled with an asset-light business model bode well for Hilton. Importantly, the industry has portrayed a bull run in the said time frame, as evident from the stock’s rally compared with the S&P 500 Index’s 24.5% growth.

Let’s delve deeper into the company’s strong fundamentals that may have led to the rally in share price.

Brand Expansion Efforts Boost Revenues

Hilton’s impressive price performance can be attributed to its focus on the expansion strategy and industry-leading brands. Hilton maintains its position as the fastest growing global hospitality company, on an organic basis, with presence in 111 countries and territories.

Furthermore, the company continues to make significant progress in its luxury development strategy, anticipating double-digit luxury growth over the next several years. Hilton’s new brands including Home2 Suites, Tru by Hilton and Tapestry Collection are also gaining momentum globally. In 2019, the company plans to open 100th Tru hotel, 500th Homewood Suites, 850th Hilton Garden Inn, and 2500th Hampton.

Hilton Honors Upgrade to Drive Traffic

Hilton has introduced one of the largest loyalty programs, Hilton Honors, with more than 99 million members until now. The network turned out to be an extremely valuable asset for the company. In the meantime, innovations such as the Hilton Honors app is favoring the program. In fact, the loyalty program increased occupancy in 2018 by 20%.

In the third quarter of 2019, Hilton Honors accounted for roughly 62% of system-wide occupancy, which was up 430 basis points year over year.

Shareholder-Friendly Business Model

Hilton has transformed into a capital-light operating business backed by the spin-off of a portfolio of hotels and resorts. Post spin-off, the company expects to be a resilient, fee-driven business with disciplined strategy.

At present, it is focusing on growing market share, improving units, free cash flow per share as well as preserving its strong balance sheet and accelerating return of capital. Hilton is also capable of generating substantial returns on minimal capital investment as its unit growth is mostly financed by third parties.

Subsequently, the company delivered a return on equity (ROE) of 973% in the trailing 12 months compared with the industry’s 9.5% rally. This supports its growth potential and indicates that the company reinvests more efficiently compared to peers.    

Zacks Rank and Key Picks

Hilton, which shares space with Choice Hotels International, Inc. (CHH - Free Report) , has a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include GreenTree Hospitality Group Ltd. (GHG - Free Report) and Civeo Corporation (CVEO - Free Report) . While Green Tree sports a Zacks Rank #1 (Strong Buy), Civeo carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GreenTree Hospitality Group has an impressive long-term earnings growth rate of 17.6%.

Civeo reported better-than-expected earnings in three of the trailing four quarters, with average being 42.5%.

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