Analyst Note| Dan Wasiolek |
We don’t expect to materially change Hilton’s $122 fair value estimate, after the company reported revenue per available room, or revPAR, at 83% of 2019 levels in the first quarter, flat with the prior three months. Like other travel peers that have recently reported, Hilton expects travel demand to pick up during the rest of 2022, with its second-quarter revPAR reaching 90%-95% of prepandemic marks and the entire year revPAR tracking up 32%-38%, which equates to 91%-95% of 2019 levels. We think revPAR guidance is very achievable, barring incremental COVID-19 or inflation headwinds, as April was already at 95% levels (up from 91% in March), implying that the rest of the year would need to average around 96% of prepandemic marks to hit the midpoint of the full-year target. Further, travel demand appears to be broadening out to business and group travel, which should provide an incremental lift to continued leisure trips. Hilton’s group demand (around 20% of prepandemic room nights) returned to 75% of 2019 levels in March, up from 50% in January, and the company thinks it could reach 90% by the end of this year. Also, U.S. business transient (25%) was 91% of 2019 levels in March, with the company believing it could fully recover by the end of the year. With shares trading at 22 times forward EV/EBITDA, compared with 14-15 times prior to the pandemic, we think investors should wait for a more attractive entry point.