Yahoo Finance HLT or H: Which Hotel Stock is Better Placed at the Moment?
The hotel industry is benefiting from improving demand, revenue per available room (RevPAR) and average daily rate (ADR). People are feeling more optimistic and confident about the prospect of traveling again. To capitalize on the sentiment, hotel operators are focusing on several initiatives to meet their customers’ needs as they return to hotels.
Hotel owners continue to focus on maintaining a balance between maximizing hotel profitability and driving guest satisfaction. To this end, hoteliers have leveraged technologies such as mobile and web check-in as well as mobile key. The hoteliers have also increased the use of these digital tools to strengthen infrastructure, grow online package sales, enable self-service bookings, make real-time offerings and enhance the overall customer experience. This and an emphasis on pricing optimization and merchandising capabilities are likely to help hoteliers capture additional market share.
However, higher costs remain a concern for the industry participants. Worries about a global slowdown and a possible recession loom large over the stock market. A high inflation is likely to curb consumer spending, which in turn will hurt the industry.
In line with the industry’s improving trend, leading hotel companies — Hilton Worldwide Holdings Inc. HLT and Hyatt Hotels Corporation H — are undertaking different initiatives to generate profits. With both the companies carrying a Zacks Rank #3 (Hold), let’s analyze and find out which is poised better with respect to different parameters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance and Valuation
Shares of Hilton have declined 4.2% in the past year, while Hyatt has surged 20.3%. Meanwhile, the industry has declined 0.2% in same time frame.
The P/E ratio is considered for the evaluation of a stock. Typically, stocks with high P/E are overvalued, while those with low P/E are undervalued. However, this metric disregards the company's growth rate. Hence, an investor is likely to pick stocks that are trading at substantially lower PE multiples.
On the basis of the forward 12-month P/E ratio, the industry is currently trading at 21.41X compared with the S&P 500’s 21.82X. Hilton has an edge with a lower forward 12-month P/E ratio of 23.83 compared with Hyatt’s 38.27X.
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Estimated Earnings & Revenues
Arguably, earnings growth is of utmost importance for determining a stock’s potential as surging profit levels indicate strong prospects and stock price gains.
For the current year, Hilton’s earnings per share are expected to improve 16.4% to $5.69. Moreover, year-over-year sales growth for the current year is expected at 11.9%. Hyatt’s current-year earnings are likely to increase 422.2% to $2.61, while sales are likely to surge 10.4% year over year. Hence, this round goes to Hyatt.
Fundamentals
In a bid to maintain its position as the fastest-growing global hospitality company, Hilton is continuing to drive unit growth. During 2022, the company opened 355 new hotels totaling 58,200 rooms. It also achieved net unit growth of 48,300 rooms.
During fourth-quarter 2022, the company unveiled Hilton Garden Inn in Japan. It also expanded its rooms under the Home2 Suites and DoubleTree by the Hilton brand.
During the fourth quarter of 2022, system-wide comparable RevPAR increased 24.8% year over year (on a currency-neutral basis), owing to an increase in occupancy and average daily rate. Also, RevPAR was up 7.5% from 2019 levels. The upside was primarily backed by strong leisure transient trends and improving business activity.
The company witnessed solid RevPAR gains in Europe, the Middle East and Africa region owing to strong leisure demand and international inbound travel throughout the summer season. Hilton anticipates system-wide 2023 RevPAR to increase between 4% and 8% on a year-over-year basis.
On the other hand, Hyatt continues to expand its presence to drive growth. During the fourth quarter of 2022, 57 new hotels (or 10,784 rooms) joined Hyatt's system. As of Dec 31, 2022, Hyatt executed management or franchise contracts for approximately 580 hotels (or 117,000 rooms).
Recently, the company announced its plan to expand the Independent Collection brands’ footprint by 2025. The company’s Independent Collection brands will have 11 new hotels in their portfolio by 2025.
During the fourth quarter of 2022, system-wide RevPAR increased 34.8% year over year, owing to an increase in occupancy and ADR. Also, RevPAR was up 2.4% from 2019 levels. The upside was primarily backed by strong leisure transient trends and improving business activity.
The company witnessed solid RevPAR gains in Europe, South Asia, Latin America and the Caribbean markets region owing to strong leisure demand. Hyatt anticipates system-wide 2023 RevPAR to increase 10-15% from 2022 levels.
Our Take
Our comparative analysis shows that while Hilton has an edge over Hyatt in terms of valuation, the higher projected 2023 EPS growth puts Hyatt in the lead. Moreover, in terms of price performance, Hyatt has clearly outperformed Hilton. Fundamentals of both the companies look solid.
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