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HLT - Hilton WorldWide


muscleman
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I haven't been contributing to this forum for a long time so I decided to share some ideas. As I said before, I've transitioned to a technical investor, and HLT came to my attention after I see some compelling technical characteristics. I am not going to go over those as that doesn't suit the audience here, but the fundamentals are pretty interesting as well.

 

I am a terrible fundamental writer which is why I've almost never created any threads here, so I'll just copy paste Bill Ackman's letter.

 

https://assets.pershingsquareholdings.com/2019/03/26133921/2018-Annual-Report-Letter-Only.pdf

 

Hilton Worldwide Holdings Inc. (“HLT”)

We reestablished an investment in Hilton in the fourth quarter of 2018 as the decline in the company’s share price provided us

with an opportunity to once again own Hilton at an attractive valuation. We previously owned a small investment in Hilton in

2016, but sold our stake as its share price appreciated rapidly during our accumulation period. Hilton is a high-quality, assetlight, high-margin business with significant growth potential led by a superb management team.

We believe that Hilton has a unique competitive moat: its large and growing network of brands and properties offers a robust

self-reinforcing value proposition for both guests and hotel owners. For guests, Hilton provides a consistent and reliable

experience in a large variety of destinations at diverse price points, as well as an attractive loyalty program with enhanced

awards, amenities, and customer service. For hotel owners, Hilton provides access to its more than 85 million loyalty program

members, large-scale marketing programs, best-in-class reservation and IT systems, and supply chain purchasing power,

which collectively allow hotel owners to achieve superior, above-market rates of return on capital.

Hilton’s robust value proposition for its franchisees and partners has allowed the company to expand its room count by

6% to 7% per year, a key driver of Hilton’s long-term growth. We believe that Hilton can maintain its current pace of unit

growth over the long term as the company expands its international footprint with existing brands, continues to create new

brands, and converts unbranded hotels to Hilton’s network of brands. Hilton’s current pipeline, more than half of which is

under construction, amounts to 40% of its existing hotel rooms. In addition, secular growth in travel should underpin strong

revenue per available room (“RevPAR”) growth (a measure of same-store sales for the lodging industry) over the longer term.

While we expect RevPAR to remain positive over the coming years, unlike a typical hotel owner, Hilton’s fee-based, asset-light

business model insulates the company from the outsized negative impact on profitability from potential short-term declines

in RevPAR.

We believe Hilton can sustain attractive high-single-digit, top-line growth, which, coupled with cost-control and a robust

share repurchase program, should allow it to compound earnings per share at a mid-teens growth rate for many years.

Pershing Square Holdings, Ltd. Annual Report 2018 20

At present, Hilton trades at less than 23 times our estimate of 2019 earnings, a discount to its historical average, and below

our estimate of the company’s intrinsic value based upon its high-quality, fee-based business model and strong future growth

potential. We believe sustained execution by Hilton’s management team will demonstrate the durability of Hilton’s business

model, which we believe is currently underappreciated by the market. Hilton’s share price, including dividends, declined 2% in

2018 from our initial average cost, but has returned 20% year-to-date.

 

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ScottHall starts a thread for MAR a while ago, same idea :

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/mar-marriott-international/

 

There is also WYN (with less brand equity , but cheaper ) and H, which still owns properties but is probably going to separate property ownership and franchising in the future.

 

In a way, all these business are similar to Airbnb, as they create a marketplace, branding and platform. The business could be hurt quite a bit in a recession. MAR and HLT depend a lot on business travelers and business travel is one of the first expenses to be cut in a belt tightening situation.

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ScottHall starts a thread for MAR a while ago, same idea :

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/mar-marriott-international/

 

There is also WYN (with less brand equity , but cheaper ) and H, which still owns properties but is probably going to separate property ownership and franchising in the future.

 

In a way, all these business are similar to Airbnb, as they create a marketplace, branding and platform. The business could be hurt quite a bit in a recession. MAR and HLT depend a lot on business travelers and business travel is one of the first expenses to be cut in a belt tightening situation.

 

Thank you for the discussion. My past 9 years of fundamental analysis tells me that I am not able to understand any of these discussions.  ::)

For example, why is Ackman long HLT only instead of the other two names, if they are cheaper?

 

I don't care what people say here. All I am tracking is the number of replies to this thread.  ;)

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WH is cheaper than HLT. I just looking at the current valuations, it looks like HLT caught up on MAR and both trades at similar multiples. H is a bet difficult to compare, because they still own rather than just franchise, but they may be the cheapest of them all. I don’t have any opinion on the charts, except from a momentum perspective, HLT looks probably more the best.

 

I am going to tear a look at international brands as well.

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