This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Check In to Hilton With Blackstone for the Long Term

During this period, Hilton increased its focus on the international markets. The company's rooms outside the U.S., which are under construction, increased by almost 80% from less than 15% in 2007, while rooms in its development pipeline outside of the U.S. increased from less than 20% to more than 60%. In China, Hilton has 171 hotels opened or under development, a big jump from just six hotels in 2007.

During the first six month of the current year, Hilton reported a 2.7% year-over-year increase in revenue to $4.64 billion, while its net income jumped 65.8% to $189 million. The increase was due to higher room rates and better occupancy rates.

On the other hand, Hilton has a lofty debt-to-equity ratio, which is about 10 times as large as the industry's average. The business has total debt of $15.1 billion, which takes its debt-to-equity ratio to 560%, considerably higher than industry's average of just 58%.

Although Hilton's balance sheet isn't perfect, the situation isn't alarming either. The company reduced its debt significantly (by $4 billion) on the back of the debt restructuring in 2010. Moreover, management has demonstrated its cost discipline and its ability to increase cash flows from operations. That caused a $2.4 billion drop in long-term debt between the end of 2010 and mid-2013. Plus, the company will use some of the proceeds from the IPO to deleverage. In short, although Hilton has high leverage but it is heading in the right direction.

The company also increased its focus on the higher margin fee-based 'management and franchise' segment and the capital efficient timeshare segment, as opposed to the ownership segment. The two former segments are far more lucrative and will improve the company's ability to generate cash flow in the coming years.

More importantly, Hilton's future looks very promising. No single hotel company enjoys more than 5% market share (in terms of hotel rooms) in the international market and more than 10% market share in the U.S. market. In international and domestic markets, Hilton is right at the top with a 5% share in the global market, ahead of InterContinental Hotels Group (IHG), and a 10% share in the U.S. market, ahead of Marriott International (MAR).

Since Hilton holds the largest market share, it could benefit the most from the recovery in the hotels and lodgings market. The hotel industry, which reported a 6.8% increase in revenue per available room last year, expects a 5.7% improvement this year and 6% in 2014. The growth in the demand for rooms continues to outpace the supply and this trend will likely continue through at least 2015. That would translate into further improvement in Hilton's earnings.

At the time of publication the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BX $24.51 0.20%
HLT $18.08 2.50%
AAPL $94.26 -0.77%
FB $101.50 2.00%
GOOG $684.03 0.87%


Chart of I:DJI
DOW 15,914.74 -99.64 -0.62%
S&P 500 1,851.86 -0.35 -0.02%
NASDAQ 4,283.5920 +14.8290 0.35%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs