Hilton Earnings: Strong Demand and Profitability Expected to Continue in 2023 Despite Macro Pressure

Demand for Hilton’s HLT brands remained resilient in the first three months of 2023, with revenue per available room, or revPAR, coming in at 101% of 2019′s level (108% in constant currency). This result was slightly above our 100% prognosis and the prior quarter’s 100%. We expect strong demand to hold through 2023. That said, year-over-year comparisons get difficult the rest of 2023, and we remain vigilant around macro risks (higher inflation, softening labor markets, tightening credit availability) that could place pressure on travel demand. Still, Hilton has not seen any signs of weakening demand, and, in fact, raised its 2023 constant currency revPAR growth guidance to 8%-11% from 4%-8% prior. We don’t expect to make much change to our $150 per share fair value estimate and view shares as fairly valued.

Hilton’s profitability metrics remain impressive, illustrated by its first-quarter EBITDA of $641 million (128% of 2019′s level). Hilton raised its 2023 EBITDA guidance by $50 million to $2.9 billion at the midpoint, squarely in line with our forecast. We still think EBITDA margins in 2023 can match 2022′s 29.6% level, remaining far above the 24.4% printed in 2019, as prior cuts to selling, general, and administrative and owned expenses hold.

Streamlined costs are not affecting Hilton’s development, which is supportive of its brand intangible asset, the source of its narrow moat. Its pipeline of 428,100 rooms was up 4% from last year and represents 38% of its existing base. We calculate that Hilton’s global room share is 6%-7% but its pipeline share is between 15%-20%, implying room share gains over the next several years. While new U.S. construction financing could become tougher to obtain, this should be offset by strong conversions (up 24% year over year in the first quarter), China’s reopening, and the new Spark brand (300 commitments versus 200 last quarter). We plan to maintain our average unit growth forecast of 4.6% for Hilton over the next 10 years.