Hilton (HLT) Hits A 52-Week High: What's Driving The Stock?

Shares of Hilton Worldwide Holdings Inc. (NYSE:H) hit a 52-week high of $84.71 on Jan 12, eventually closing a tad lower at $83.95.

The company’s shares have charted a growth trajectory in recent times, appreciating 34% in the past six months, ahead of the industry’s gain of 30.3%.

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

Hilton Honors Upgrade to Drive Traffic

Hilton has created one of the largest loyalty programs, Hilton Honors. With about 70 million members, this network has created an extremely valuable asset for the company. In fact, about 57% of all occupancy per night takes place through this member program. The company believes that enhancing its loyalty program can reach out to more guests, thereby driving traffic.

Recently, the company announced a few updates to its guest loyalty program. Hilton announced that all its members will continue to earn points the way they always have and can also opt for new elite tier bonus rates. This will be applicable for the company’s Silver, Gold and Diamond members.

The perks of the updated loyalty program will include 10,000 Bonus Points on every tenth night, once members reach at least 40 nights in a calendar year. Hilton is also providing the option to rollover nights and gift status.

The company is continuing to make multiple enhancements to its loyalty program in order to make it more customer-centric by driving incremental value for guests and the overall system.

Additionally, innovations such as the Hilton Honors app continue to drive growth in the program. In addition to being the company’s fastest growing and lowest cost distribution channel, this app enables a differentiated customer experience.

Meanwhile, Hilton announced a partnership with American Express (NYSE:AXP) (Amex) in a bid to boost the program’s ability to drive demand. In November 2017, Amex launched a marketing portfolio of Hilton Honors credit cards in the country, which will drive the program’s membership and enhance member engagement. The growth of card spend under this partnership should benefit license fee growth for Hilton.

We believe that the appraisal with Hilton Honors will significantly strengthen Hilton’s customer base and boost the company’s top line via increased traffic.

Brand Expansion Efforts Boost Investor Confidence

Hilton’s price rise seems to be the result of strong investor optimism, given that Hilton’s scale, size, commercial platform and industry-leading brands continue to drive growth. Hilton maintains its position as the fastest growing global hospitality company on an organic basis with presence in 104 countries and territories.

The company continues to make great 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, Tapestry Collection, are also gaining momentum globally.

Shareholder-Friendly Capital-Light 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. In fact, the focus is expected to be on growing market share, units, free cash flow per share as well as accelerating return of capital (ROE). Furthermore, as Hilton’s unit growth is mostly financed by third parties, the company is capable of generating substantial returns on minimal capital investment.

Subsequently, the company delivered a return on equity (ROE) of 27.3% in the trailing 12 months as against the industry’s loss of 19%. This supports its growth potential and indicates that the company reinvests more efficiently compared to peers.

Analysts Optimistic

For 2018, three estimates have gone up while none moved down in the last 60 days. The trend has been favorable too, with estimates rising from $2.26 a share 60 days ago to $2.43 currently, marking an increase of 7.5%. This shows that analysts are positive on the stock’s potential, which is backed by the company’s vigorous expansion and sales-building initiatives.

Zacks Rank & Other Stocks to Consider

Hilton carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the hotel space include InterContinental Hotels Group PLC (NYSE:IHG) , Hyatt Hotels Corporation (NYSE:H) and Choice Hotels International, Inc. (NYSE:H) . While Hyatt and InterContinental Hotels flaunt a Zacks Rank #1 (Strong Buy), Choice Hotels carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Choice Hotels and InterContinental’s 2018 earnings are expected to rise 14.6% and 37.1%, respectively.

Hyatt’s projected long-term EPS growth is 4.3%.

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