Hotel Operator Hilton Shares Rise After Profit Beats Estimates; Target Price $100

Hilton Worldwide Holdings, one of the largest and fastest-growing hospitality companies in the world, reported a better-than-expected profit in the third quarter as cost-cutting helped the multinational hospitality company to recover from the COVID-19 pandemic slump, sending its shares up about 2% in the premarket.

The U.S. hotel operator said its diluted EPS at -$0.28 for the third quarter, and diluted EPS, adjusted for special items, was $0.06. That was better than market expectations of a loss of 2 cents per share.

Hilton posted a net loss of $81 million for the third quarter and adjusted EBITDA of $224 million. System-wide comparable RevPAR plunged 59.9% on a currency-neutral basis for the third quarter from the same period last year.

“The better than expected results and continued progress in key metrics should be incrementally positive for the shares, in the context of the broader market action. Despite the limited visibility into near-term business and group travel, the improving RevPAR and continued NUG are positive bases for recovery and furtherance of the financial merits of the business model,” said David Katz, equity analyst at Jefferies.

Hilton shares rose 1.61% to $92.11 in pre-market trading on Wednesday; however, the stock is down about 20% so far this year.

Executive Comments

“Our third-quarter results show meaningful improvement over the second quarter. The vast majority of our properties around the world are now open and have gradually begun to recover from the limitations that the COVID-19 pandemic has imposed on the travel industry, with occupancy increasing more than 20 percentage points from the second quarter,” said Christopher J. Nassetta, President & Chief Executive Officer of Hilton.

“While a full recovery will take time, we are well-positioned to capture rising demand and execute on growth opportunities.”

Hilton Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $89.89 with a high forecast of $104.00 and a low forecast of $80.00. The average price target represents a -0.84% decrease from the last price of $90.65. From those ten analysts, five rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $81 with a high of $129 under a bull-case scenario and $49 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the hospitality company’s stock. ValuEngine raised Hilton Worldwide to a buy rating from hold.

Several other analysts have also recently commented on the stock. Jefferies Financial Group raised to a buy rating from hold and increased their price target to $101 from $72. Raymond James increased their price target to $92 from $90 and gave the company an outperform rating. Citigroup increased their price target to $92 from $75 and gave the company a neutral rating.

We think it is good to buy at the current level with a target of $100 as 100-day Moving Average and 100-200-day MACD Oscillator signal a buying opportunity.

Analyst Comments

“Humana has both high earnings exposure (~75%) to Medicare Advantage (MA), and leading MA market share (~18%). Humana is executing on organic Medicaid growth and at only ~5% of earnings, Medicaid provides an additional growth pipeline for the company,” said Ricky Goldwasser, equity analyst at Morgan Stanley.

“Recent Medicaid contract wins in LA and KY underscore that management’s Medicaid strategy is playing out. A strong balance sheet and continued solid cash generation lay a foundation for expanding services offerings via potential M&A,” Goldwasser added.

Upside and Downside Risks

Upside: 1) US RevPAR recovers faster than we expect. 2) Economic improvement drives better than expected unit growth. 3) Greater margin expansion – highlighted by Morgan Stanley.

Downside: 1) COVID-19 headwinds to US RevPAR persist for longer than we model. 2) Weaker than expected unit growth and/or credit card fee growth. 3) Increasing costs weigh on margins. 4) Structural lodging headwinds, such as alt accommodations / re-pricing tools / OTAs impact RevPAR growth.

Check out FX Empire’s earnings calendar

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