Hilton (HLT)

Hotel company Hilton (NYSE:HLT) missed Wall Street’s revenue expectations in Q1 CY2025 as sales rose 4.7% year on year to $2.70 billion. Its non-GAAP profit of $1.72 per share was 7% above analysts’ consensus estimates.

Company Overview

Founded in 1919, Hilton Worldwide (NYSE:HLT) is a global hospitality company with a portfolio of hotel brands.

Airlines, hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional airlines, hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Hilton’s primary competitors include Marriott International (NASDAQ:MAR), InterContinental Hotels Group (NYSE:IHG), Hyatt Hotels (NYSE:H), Wyndham Hotels & Resorts (NYSE:WH), and Accor (EPA:AC).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Hilton’s 4.3% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the consumer discretionary sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. Hilton’s annualized revenue growth of 9.9% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s revenue dynamics by analyzing its revenue per available room, which clocked in at $103.59 this quarter and is a key metric accounting for daily rates and occupancy levels. Over the last two years, Hilton’s revenue per room averaged 3.4% year-on-year growth. Because this number is lower than its revenue growth, we can see its sales from other areas like restaurants, bars, and amenities outperformed its room bookings.

This quarter, Hilton’s revenue grew by 4.7% year on year to $2.70 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 8.6% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Hilton’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 21.2% over the last two years. This profitability was top-notch for a consumer discretionary business, showing it’s an well-run company with an efficient cost structure.

This quarter, Hilton generated an operating profit margin of 19.9%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Hilton’s EPS grew at a solid 13.7% compounded annual growth rate over the last five years, higher than its 4.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q1, Hilton reported EPS at $1.72, up from $1.53 in the same quarter last year. This print beat analysts’ estimates by 7%. Over the next 12 months, Wall Street expects Hilton’s full-year EPS of $7.30 to grow 11.8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Hilton has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 17.9% over the last two years, quite impressive for a consumer discretionary business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Hilton’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 15.3%, slightly better than typical consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Hilton’s ROIC has increased significantly over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Hilton reported $0 of cash and $0 of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $3.47 billion of EBITDA over the last 12 months, we view Hilton’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $583 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Hilton beat analysts’ EPS expectations this quarter. On the other hand, its revenue slightly missed and its EBITDA guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 2.3% to $216.73 immediately following the results.

Updated: May 22, 2025 at 10:53 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Hilton.

Hilton’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was weak over the last five years. And while Hilton’s strong operating margins show it’s a well-run business, its revenue per room has disappointed.

Hilton’s P/E ratio based on the next 12 months is 30.2x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $248.49 on the company (compared to the current share price of $254.73), implying they don’t see much short-term potential in Hilton.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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