Hilton Hotels: A New Lease on Life
The hotel chain benefits from improving demand for lodging in the U.S. and now has strong presence in high-growth overseas markets.
If you've had trouble booking a room at the inn or experienced sticker shock for a night in a bed, then you'll understand the case for Hilton Hotels (symbol HLT). The venerable hotel chain has a new lease on life.
First, Hilton just remarried. The U.S. company acquired Hilton International of Britain -- a company spun off by Hilton USA 40 years ago -- for nearly $6 billion. The purchase brings with it the Conrad luxury chain and a strong hostelry presence in high-growth overseas markets such as the Far East. Sam Lieber, who runs Alpine U.S. Real Estate Equity fund, notes the acquisition will dramatically boost the foreign share of Hilton's revenues from the low single digits to 29%, about the same level as for more-worldly Marriott.
But Lieber, who has made Hilton the largest holding in his fund, also loves the company for its domestic business. Several years ago, a combination of recession, 9/11 and the SARS virus clobbered the travel industry. Construction of new hotels ground to a halt for years. Since 2003, demand for hotel beds has come roaring back, but Lieber doesn't think supply of new hotels will increase much until 2008 (it takes three to five years to plan and erect a big-city hotel). Result: Hotels like Hilton have jacked up room rates, without increasing overheads such as labor. Last year the lodging industry's average revenue per room available surged 12% and should rise another 8% to 10% this year.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Lieber also likes Hilton's longer-term story, noting that the chain is migrating to the asset-light, high-return Marriott model. Hilton will gradually sell Hilton-owned properties and expand its fee-based hotel-management and franchising businesses (the group includes the Hampton Inn and Doubletree brands), which sport a higher return on invested capital. Lieber thinks Hilton can raise its return on equity, 14%, to a Marriott-like level of 19%.
Trading hands at $25 a share, Hilton's stock sells at a 20% to 25% lower valuation than that of its competitors, according to the Alpine fund manager. If his thesis is correct, Lieber sees the stock moving into the low $30s range within a year and the high $30s within two years. Founder Conrad Hilton would be pleased.
--Andrew Tanzer
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
A Guide to Music Streaming Services
Deals Our guide to music streaming services from Spotify to Amazon Music, Tidal to Apple Music and how to find music streaming deals.
By Vaishali Varu Published
-
Stock Market Today: Markets Reflect Global Uncertainty
Exuberance fades as investors confront micro challenges and a murkier macro environment.
By David Dittman Published
-
Why Is Warren Buffett Selling So Much Stock?
Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
By Dan Burrows Published
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
By Dan Burrows Published
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have Today
Google parent Alphabet has been a market-beating machine for ages.
By Dan Burrows Published
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
By Dan Burrows Published
-
Stock Market Today: Stocks Retreat Ahead of Nvidia Earnings
Markets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
By Dan Burrows Published
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in Focus
Nvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
By Karee Venema Published
-
Stock Market Today: Dow Hits New Record Closing High
The Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
By Karee Venema Published
-
Stock Market Today: Stocks Pop After Powell's Jackson Hole Speech
Fed Chair Powell's Jackson Hole speech struck a dovish tone which sent stocks soaring Friday.
By Karee Venema Published