Shares of Hilton Worldwide Holdings, Inc (HLT, Financial) have fallen sharply over the past few weeks amid macroeconomic concerns. The stock has delivered a total return of -26% since reaching an all-time high in February 2025. Comparably, the S&P 500 has delivered a total return of -17% over the same time period.
Hilton has delivered strong long-term results for investors driven by solid earnings growth. The company continues to have attractive growth opportunities driven by high single digit room growth plans over the next few years. Investing guru Bill Ackman (Trades, Portfolio) has been a long-time shareholder of the company and currently holds a roughly $1.3 billion position in the stock.
The stock currently trades at a forward price to earnings ratio of 27x which represents moderate premium to the broader market but a more reasonable premium than was the case earlier this year. I believe Hilton's valuation is now attractive given the attractive near-term growth prospects for the business.
Company overview
Hilton is primarily a hotel franchise and licensing company as roughly 7,566 of its hotels operate under franchise or licensing agreements. Additionally, the company manages 831 properties and owns roughly 50 properties. More than 90% of the company's Adjusted EBITDA is driven by fees. Thus, Hilton operates a fairly capital light business. Nearly 79% of the company's revenue is derived from its North America business while the remaining 21% of revenues from international markets. Key international regions include Europe and Asia Pacific.
Hilton brands include hotel chains Waldorf Astoria, Hilton, DoubleTree, Embassy Suites, and many others. As one of the largest hotel companies in the world, Hilton enjoys strong competitive advantages due to its scale and loyalty program (roughly 211 million members) which makes it a highly attractive partner for hotel owners and operators.
Earnings growth story
Hilton has multiple earnings growth drivers. Perhaps the most important growth driver for the company is its massive development pipeline. Currently, Hilton has roughly 499,000 rooms in its development pipeline relative to a current room count of roughly 1,268,000 rooms. One thing to note is that roughly half of Hilton's development pipeline is already under construction and thus room growth is fairly visible. The company expects net room growth of 6-7% in 2025. Based on the company's large development pipeline, I believe this level of room growth can be sustained for many years into the future. Moreover, the company has significant international growth opportunities as just 20% of Adjusted EBITDA comes from markets outside North America.
Another important earnings driver for Hilton is Revenue Per Available Room (“RevPAR”) growth. The company expects RevPAR to grow at an annual rate of 2%-4% over the next few years. Finally, another important driver of earnings growth for the company is its share repurchase program which tends to be significant given the fact that Hilton's business is not capital intensive due to its franchising focused business model. Hilton currently has roughly $4.4 billion remaining under its current share repurchase program which represents roughly 8.3% of shares outstanding at current prices. Overall, I believe Hilton is well positioned to deliver mid-teens earnings growth for the foreseeable future. Consensus estimates call for the company to deliver Adjusted earnings per share growth of 12.6%, 15.9%, and 17.8% for FY 2025 – 2027.
Bill Ackman (Trades, Portfolio) backing
Bill Ackman (Trades, Portfolio)'s Pershing Square has been a holder of Hilton shares since 2018. Currently, Pershing Square holds a roughly $1.3 billion stake in Hilton which accounts for roughly 10.7% of its portfolio. Ackman views Hilton as a high-quality business with a very strong growth runway due to the combination of unit growth, share repurchases, and RevPAR growth. That being said, while Hilton remains a core position, Ackman reduced his stake in the company by roughly 26% during Q4 2024 due to its relatively high valuation. I do not view Ackman's decision to reduce his stake as cause for concern as Hilton shares had become an outsized position in Pershing Square's portfolio.
Valuation is reasonable
Hilton shares currently trade at 27x consensus FY 2025 earnings per share and 23.5x consensus FY 2026 earnings per share. This represents a moderate premium to the S&P 500 which trades at 20x consensus forward earnings. However, I view the valuation premium as warranted given Hilton's long runway for mid-teens earnings per share growth. Comparably, over the medium-term I expect the S&P 500 to grow earnings at a high single digit rate which is inline with historical norms. I believe Hilton's valuation premium is warranted given is stronger growth potential, high-quality business model, and solid competitive advantages due to the scale of its loyalty program.
Hilton's publicly traded peer such as Marriott International (MAR, Financial) and Hyatt Hotels Corporation (H, Financial) also trade at a premium to the broader market. Marriott currently trades at 23x consensus FY 2025 earnings per share and is expected to grow earnings per share at a low double-digit rates over the next few years, which is somewhat lower than Hilton's growth potential. Hyatt trades at a forward price to earnings ratio of 37x based on FY 2026 consensus earnings per share estimates. While Hyatt trades at a premium to Hilton, it is expected to grow earnings more rapidly in the coming years including.
While Hilton trades at a relatively high valuation, it is much more reasonable than was the case a few months ago when the stock had traded at a forward price to earnings ratio above 30x. I also view Hilton's valuation as reasonable compared to peers. Additionally, the stock has a GuruFocus value of $230 which suggests the stock is reasonably valued based on a variety of valuation metrics.
Macroeconomic risk
The biggest risk to the bull case for Hilton is the potential for an economic slowdown. Travel tends to be a highly discretionary activity and thus demand for hotel rooms tends to fall sharply during periods of economic stress. This creates a situation in which hotels have excess capacity resulting in lower average room rates. As a result, Hilton earnings could experience significant pressure as the company generates the vast majority of its revenue from fees related to the average revenue per unit of the hotels in its system. Moreover, an economic slowdown can also lead to less growth in the development of new hotels and thus it becomes more challenging for Hilton to grow its hotel and room count. While I expect continued headlines related to Trump tariff policies, I ultimately expect negotiations to result in deals which will resolve much of the uncertainty and provide a solid foundation for economic conditions in the coming years.
Conclusion
Hilton shares have recently experienced a significant pull-back from all-time highs reached earlier this year. The company operates a capital light business model and enjoys competitive advantages related to its scale and network effects due to its loyalty program. The company has a long growth runway driven by an aggressive expansion pipeline.
The stock has been a longtime holding of Bill Ackman (Trades, Portfolio) and remains a core part of his portfolio. I view the stock's current valuation as reasonable and believe that its premium relative to the broader market is appropriate. I view Hilton shares as an attractive investment opportunity at current levels.
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