Hilton Hotels'

(HLT) - Get Report

shares rose to within spitting distance of a new 52-week high after a Merrill Lynch analyst issued a buy rating on them.

The lodging company is poised to benefit from strength in important markets, has a solid balance sheet and has traded recently at a "compelling" valuation, wrote Merrill's David Anders, who also lifted his 12-month price target on its stock to $25. (Merrill Lynch does and seeks to do business with companies covered in its research reports.)

In reaction, shares were up 63 cents, or 2.8%, at $22.98, after rising to an intraday high of $23.29, just 7 cents shy of the stock's 52-week high of $23.36.

"We believe Hilton's owned-hotel portfolio is well-positioned to take advantage of continuing strong fundamentals in markets such as New York and Hawaii, and that selective repositioning activities will only improve the owned-hotel portfolio going forward," Anders wrote.

Booming travel to New York and Hawaii has caused double-digit growth in revenue per available room, or REVPAR, in those markets so far this year, noted Anders, who estimates those areas account for between 35% to 40% of earnings before interest, taxes, depreciation and amortization, or EBITDA, in Hilton's owned-hotel portfolio.

At the same time, Anders believes the company is making progress in improving its balance sheet, which will allow it to either make new strategic investments or return cash to shareholders. At the end of last year, the company's debt totaled $3.6 billion (excluding $100 million in non-recourse obligations), down $300 million from year-end 2003. Debt-to-equity declined to 3.7 times in 2004 from 4.4 a year before, and Anders estimates that ratio could be "just above" 3.0 times by the end of this year.

Anders also raised his 2005 and 2006 EPS estimates to 77 cents and 96 cents, respectively, from 74 cents and 94 cents.