Is Hilton Still Attractive After Its Huge Multi Year Rally And Global Expansion Plans?
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If you have been wondering whether Hilton Worldwide Holdings is still worth buying after its huge run, you are not alone. This article will walk through what the current share price actually implies.
The stock has cooled slightly with a 1.2% dip over the last week, but that comes after a 9.4% gain in the last month, 14.7% year to date, and a massive 106.2% and 161.1% return over the past 3 and 5 years respectively.
Recent headlines have focused on Hilton expanding its global footprint through new property openings and brand partnerships, as well as strategic moves to strengthen its loyalty ecosystem and premium offerings. Together, these developments help explain why investors have been willing to re-rate the stock despite a more cautious macro backdrop.
Yet, on our scorecard Hilton currently posts a valuation score of 0/6, which suggests the market may be paying up for quality. Next we will break down what different valuation methods say about that price tag and then finish with a more nuanced way to think about Hilton’s true worth.
Hilton Worldwide Holdings scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A Discounted Cash Flow model estimates what a company is worth today by projecting the cash it can generate in the future and then discounting those cash flows back to the present.
For Hilton Worldwide Holdings, the latest twelve month free cash flow is about $2.29 billion. Analysts provide detailed forecasts for the next few years, and beyond that Simply Wall St extrapolates the trend, with free cash flow expected to rise to around $2.83 billion by 2035. Those ten year projections imply steady, but not explosive, growth in Hilton’s ability to generate cash for shareholders.
When all of those future cash flows are discounted back using a 2 Stage Free Cash Flow to Equity model, the estimated intrinsic value comes out at about $168 per share. Compared with the current market price, this suggests Hilton is roughly 67.4% overvalued on a pure cash flow basis. This means investors are paying a sizeable premium to the DCF estimate of value.
For consistently profitable companies like Hilton, the price to earnings ratio is a useful way to gauge valuation because it ties the share price directly to the profits the business is generating today. In general, faster growing and lower risk companies justify a higher PE multiple, while slower growth or higher uncertainty should translate into a lower, more conservative PE.
Hilton currently trades on a PE of about 39.3x, which is well above both the Hospitality industry average of around 21.3x and the broader peer group average of roughly 24.9x. To move beyond these blunt comparisons, Simply Wall St calculates a Fair Ratio, which is the PE that might be expected for Hilton after factoring in its earnings growth outlook, profitability, industry positioning, size and specific risk profile. For Hilton, that Fair Ratio is estimated at about 29.8x.
This Fair Ratio is more informative than simple peer or industry comparisons because it is tailored to Hilton’s own fundamentals rather than assuming all hotel operators deserve the same multiple. With the market paying 39.3x versus a Fair Ratio of 29.8x, Hilton screens as meaningfully overvalued on an earnings multiple basis.
Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, which are simple stories that investors create on Simply Wall St’s Community page to connect their view of Hilton Worldwide Holdings future revenue, earnings and margins to a specific financial forecast and fair value. They can then continuously compare that fair value to the live share price to decide whether to buy, hold or sell, with those Narratives automatically updating as new earnings, news and guidance arrive. For example, one investor might build a bullish Hilton Narrative around rapid Asia Pacific expansion, resilient margins and a fair value closer to the more optimistic analyst target of about $311. Another might focus on macro risks, slower RevPAR and thinner profitability to arrive at a more cautious fair value nearer the lower end of recent targets around $229. Both can clearly see how their story, numbers and valuation fit together and evolve over time in a way that is accessible even if they are not valuation experts.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include HLT.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
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