Hilton Worldwide Holdings Inc. (HLT): Billionaire Bill Ackman Says It Has Strong Future Growth Potential

“Hilton Worldwide Holdings Inc. (“HLT”)

Hilton’s most recent results reinforce our view that the company’s robust value proposition and asset-light, fee-based business model should allow the company to compound earnings per share at a mid-to-high teens growth rate for many years into the future. This quarter, Hilton grew units more than 7% contributing to 12% franchised and management revenue growth, 12% EBITDA growth and 19% earnings per share growth. Revenue per available room (“RevPAR”) grew 1.8% this quarter despite softness in the overall industry as Hilton realized strong market share gains across all brands and major regions.

During the company’s earnings call, management noted that it would expect free cash flow to grow even in the event Hilton were to experience a 5% to 6% RevPAR decline. Management’s comments are consistent with our view that the combination of Hilton’s fee-based business model and its large unit development pipeline should insulate the company from even a meaningful short-term decline in RevPAR. While Hilton’s shares have appreciated 28% this year, the shares currently trade at 24 times consensus analyst estimates for 2019 earnings, a discount to the historical average, and below our estimate of the company’s intrinsic value based upon its high-quality, predictable cash-flow stream and strong future growth potential.”

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Hilton Worldwide Holdings is a world-renowned hospitality company with a market cap of $25.88 billion. It manages and franchises a large portfolio of hotels and resorts. Hilton Worldwide Holdings has a century-long tradition that dates back to 1919 when it was founded by Conrad Hilton.

Year-to-date, Hilton’s stock is up by 25.33%, and on May 29th, it had a closing price of $88.91, whereas over the past 12 months, its shares gained 7.57%. The stock is trading at a price-to-earnings ratio of 35.02. In its last financial report for the first quarter ended March 31st 2019, the company reported diluted EPS of $0.54 and diluted EPS adjusted for special items of $0.80, up by 6% and 16% for the same quarter of 2018, respectively. Hilton Worldwide Holdings also disclosed net income for the quarter of $159 million, representing a decrease of 2% from the corresponding period in 2018, and adjusted EBITDA of $499 million, up by 12% for the same period in 2018, surpassing the high-end of guidance.

Of all the hedge funds in Insider Monkey’s database, the most valuable position at the end of March 31st, 2019 in Hilton Worldwide Holdings reported Natixis Global Asset Management’s Harris Associates, while the second biggest position held Bill Ackman’s Pershing Square. Harris Associates held 14.45 million Hilton’s shares that were valued $1.20 million, while Pershing Square’s position was worth $911.41 million, on the account of 10.97 million shares. Other smart money investors with notable stakes in the company counted Daniel Sundheim’s D1 Capital Partners, Boykin Curry’s Eagle Capital Management, Daniel S. Och’s OZ Management.

Disclosure: None.

This article is originally published at Insider Monkey.