Does Hilton Hotels deserve to be at all-time highs?

Hilton Worldwide (HLT) lost $715 million last year.

So why is the stock near all-time highs?

Our TrackstarIQ data highlighted unusual search activity amongst institutional advisors in the last few days.

With no news and a company at prices 12% higher than 2019, the question is why?

Is there a growth story behind the luxury chain that we’re missing?

Not for long.

We rolled up our sleeves and dug deep into their ledgers to find out the real story behind their value.

Hilton Hotels

Hilton Worldwide was taken private more than a decade ago before listing back on the exchanges in 2014.

Shortly thereafter, they spun off their timeshare and real estate divisions into their own publicly traded companies.

Here’s a quick look at their brands and business structure:

Similar to competitors like Wyndham Hotels (WH), Hilton derives around 70% of its revenues from the U.S.

Leaning on its history, Hilton focuses on luxury brands and standing relative to other chains.

As consumer tastes change, Hilton added a mobile app that allows digital check-ins and keys, as well as connecting with other services such as Lyft.

A key focus has been their Hilton Honors loyalty program, driving increased customer interactions and personalized engagement.

Going forward, the company plans to expand room capacity in a more balanced fashion, with a greater focus on Asia Pacific growth markets.

So what about the numbers?

It’s tough to judge Hilton based on last year’s performance because…well Covid.

A better interpretation is to go back to prior years and see what we can expect.

Generally speaking, operating margin sits at around 16% compared to Marriott (MAR) at 11%, Wyndham Hotels (WH) at 22%, and Hyatt (H) at 7%.

Looking into next year’s earnings estimates, Hilton trades at a price to forward earnings ratio of 31.5x compared to Wyndham’s 23.4x and Marriott’s 30.5x.

One point of differentiation: Marriott still operates their timeshare division under the umbrella company whereas Hilton does not.

The purest comparison comes down to Wyndham and Hilton with the main difference in target audience.

Hilton bills itself as more upscale while Wyndham is a value play.

Our hot take

On pure fundamentals, Wyndham Hotels edges out Hilton through a better operating margin history as well as a lower forward P/E multiple.

Both will benefit from the increased economic activity across the globe.

However, it’s a bit disconcerting to see both near all-time highs prior to actually achieving those results with multiple headwinds still in place.

As a long-term play, both are great companies.

In the short-term, they both need to let off some steam.

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