4. Hilton Worldwide Holdings Inc. (NYSE: HLT)
Sundheim’s Stake Value: $574,381,000
Percentage of Daniel Sundheim’s 13F Portfolio: 4.25%
Number of Hedge Fund Holders: 47
Hilton Worldwide Holdings Inc. (NYSE: HLT) owns, rents, manages, develops, and franchises hotels and resorts. The company was founded in 1919 and is placed fourth on the list of 10 best stocks to buy according to billionaire Daniel Sundheim. The company shares have offered investors more than 52% in returns over the course of the past 12 months.
On August 2, Argus analyst John Staszak initiated a coverage on Hilton Worldwide Holdings Inc. (NYSE: HLT) with a “Buy” rating and raised the price target to $154 from $145. On July 29, Hilton posted earnings results for the second quarter of 2021. The earnings per share was $0.56, beating market predictions by $0.17. However, the revenue over the period was $1.33 billion, missing the estimates by $20 million.
The hedge fund managed by Daniel Sundheim owns more than 4.75 million shares in Hilton Worldwide Holdings Inc. (NYSE: HLT), worth over $574 million, representing 4.25% of their portfolio. D1 Capital Partners has trimmed its stake in the firm by 29% in the last three months.
LRT Capital Management, in its first-quarter 2021 investor letter, mentioned Hilton Worldwide Holdings Inc. (NYSE: HLT). Here is what LRT Capital Management has to say about Hilton in its letter:
“Hilton is the second largest hotel company in the world after Marriott International (MAR). The company owns a portfolio of brands from the low end (Hampton Inn, Hilton Garden Inn), through the mid-tier (DoubleTree, Hilton, Curio, Embassy Suites, Homewood Suites), to the luxury high end (Waldorf Astoria, Conrad, LXR). Hilton’s portfolio is almost perfectly balanced between the three categories, while the majority (73%) of the company’s EBITDA geographic exposure is in the United States with Asia Pacific and Europe each contributing another 10%. Hilton today is almost exclusively a manager and franchisor of hotels, not a hotel owner. The company owns 61 hotels, manages 715 and franchises 5,702 – in total 6,478 properties with over 1 million combined rooms.8 Like all franchise based businesses Hilton requires very little capital to grow as it utilizes the investment capital of its hotel-owners/partners to expand. Hilton currently faces a difficult operating environment due to the covid-19 pandemic and uncertainty about the future of business travel. However, the company is an excellent operator with a somewhat leveraged capital structure – if pent-up demand for travel materializes post-Covid, as we expect it will, the company will quickly go from losing money to raking in profits.
Hilton last reported earnings on February 17, with both top and bottom line disappointing investment analysts’ expectations. However, these poor results are not indicative of the company’s long-term outlook. In normal times, Hilton generates prodigious free cash flow which we expect will resume once travel demand returns. Over the longer term we expect Hilton to grow its topline at least twice as fast as GDP due to rising revenues per room and the growing number of rooms. Most importantly, the industry continues to consolidate with chain branded hotels taking market share from independent operations. With the superior marketing and loyalty programs offered by hotel chains (Hilton Honors has 112 million members) driving demand, independent hotel owners see the benefits of signing up with one of the dominant hotel chains (Hilton, IHG and Marriott). Furthermore, the company’s main growth opportunities remain abroad, as hotel chain penetration remains much lower outside the United States. Shares are up 9.34% year-to-date. We believe the shares are undervalued at 31.72x forward earnings.”
