Melius has downgraded shares of Hilton Worldwide (NYSE: HLT) from Buy to Hold due to the hotel stocks outpacing estimates.
The analyst noted that Hilton, along with other hotel companies like Marriott and Hyatt, benefit from asset-light models that contribute to long-term earnings growth. These models have historically provided robust growth opportunities for these businesses.
Despite the positive outlook on the business models, the downgrade was prompted by a significant increase in the stock values year-to-date (YTD), with Hilton's stock increasing over 22%, attributed mainly to multiple expansions. Hilton's valuation expanded by five turns, with Hyatt and Marriott also seeing expansions of four and three turns, respectively, since before the pandemic.
The analyst pointed out that while U.S. leisure demand is showing signs of moderation, there are also ongoing challenges in China that are causing estimates to fall behind. The firm's perspective on corporate travel and group demand remains largely unchanged. However, the forthcoming U.S. election could introduce variables that disrupt the current positive trends in the market.
In other recent news, Hilton Worldwide Holdings (NYSE:HLT) reported a significant $1 billion offering in senior notes due 2033, aimed at bolstering general corporate purposes. This financial move comes on the heels of Hilton reporting an adjusted EBITDA of $917 million for the second quarter, along with a year-over-year increase in net unit growth of 6.1%.
In analyst developments, Baird raised its price target for Hilton to $235.00, maintaining an Outperform rating, while Goldman Sachs (NYSE:GS) initiated coverage with a Buy rating and a price target of $245.00. Morgan Stanley (NYSE:MS) also maintained an Overweight rating, adjusting the price target to $233.
In labor-related news, union workers began strikes at six Hilton-managed hotels in the United States, including significant contributors to Hilton's revenue such as the Hilton San Diego Bayfront and the Hilton Hawaiian Village. The strikes, which began in early September, are expected to impact large events and bookings, potentially affecting financial outcomes for property owners.
InvestingPro Insights
Recent data from InvestingPro adds context to Melius's downgrade of Hilton Worldwide (NYSE:HLT). The stock's impressive performance is reflected in its 31.44% year-to-date price total return and its current trading at 99.5% of its 52-week high. This aligns with Melius's observation of Hilton's significant stock value increase.
InvestingPro Tips highlight Hilton's "impressive gross profit margins" and that it's "trading at a high earnings multiple." The company's gross profit margin stands at a robust 75.38% for the last twelve months as of Q2 2024, underscoring the efficiency of its asset-light model. However, the high P/E ratio of 50.23 suggests the stock may be overvalued, supporting Melius's decision to downgrade based on valuation concerns.
Investors seeking a more comprehensive analysis can access 13 additional InvestingPro Tips for Hilton Worldwide, offering deeper insights into the company's financial health and market position.
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