There's no question that the events of Sept. 11 have adversely affected the hotel industry. In fact, virtually every domestic chain, big and small, has warned that the near-term outlook for bookings is sketchy at best. Still, there's at least one company in the group that I think deserves a second look:

Hilton Hotels

(HLT) - Get Report

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Not that Hilton was immune to the industrywide slowdown.

In fact, it's been hurt pretty hard. So much so that management warned that the company will merely break even in the fourth quarter. Analysts surveyed by Thomson Financial/First Call had expected the company to earn as much as 7 cents a share in the period.

But I think Hilton's a terrific stock for the long haul, and here's why:

Hilton has a huge store-footprint. In other words, it isn't overly dependent on any one market.

It isn't stuck with just one concept. It has several brands that cater to a number of pricing points, including Hilton, Hilton Garden Inn, Doubletree, Embassy Suites and Hampton Inn.

It has really deep pockets. With ample access to cash and credit facilities, and its existing free cash flow, Hilton has the means to continue to expand and to fund capital expenditures.

Room cancellations seem to have peaked. Management said, and I confirmed through a series of phone calls, that occupancy rates have started to pick up across all brands over the past few weeks. And roughly 40% of the cancellations for September and October have been rebooked for later dates.

Despite the near-term uncertainty, Hilton plans to add roughly 160 locations -- that would be about an 8% increase over the 2,001 properties now in its system.

Cost-cutting measures, including better purchasing habits andtargeted layoffs, will boost margins.

Hilton's efforts to pay down debt reduced interest expense by 19% in the third quarter. And the low interest-rate environment should steadily bring down the cost associated with its floating rate obligations -- which represent roughly 30% of its total debt -- over the next year.

According to management, though occupancy rates have suffered since Sept. 11, revenue per available room should be flat to slightly up in 2002. Considering the economic environment, and Americans' aversion to travel these days, that's impressive.

The stock is cheap. According to Baseline, Hilton stock has traded anywhere between eight and 36 times trailing earnings over the past five years, and it now trades at just 14.3 times trailing earnings. The stock has traded at 3.6 times and 20.1 times cash flow over the past five years, and it now trades at 5.2 times cash flow. That's despite the fact that earnings have decreased by 7% a year on average during that same period.

Management has said the company can earn in the "mid-60 cents per share range" in 2002. That's well ahead of both the latest consensus estimates of 44 cents a share for 2001 and the 49-cent-per share estimate for 2002.

The bottom line is that the near-term outlook is indeed questionable.There's no guarantee that cancellations will rebook. However, the company's fundamentals, operating history and potential for growth lead me to believe that at under $10, the shares are a bargain. Assuming the company is able to meet management's objectives, I think we are looking at a $12 stock at a minimum in the next 12 to 18 months.

In keeping with TSC's editorial policy, Glenn Curtis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Curtis welcomes your feedback and invites you to send it to

Glenn Curtis.