Unit Growth & Solid RevPAR To Aid Hilton (HLT) In Q2 Earnings

Hilton Worldwide Holdings Inc. (NYSE:HLT) is slated to report second-quarter 2019 results on Jul 24, before the opening bell.

The company’s sincere reliance on unit expansion is likely to have driven top-line growth in the to-be-reported quarter while a capital-light business model is likely to have boosted earnings.

It witnessed better-than-expected earnings in nine of the trailing 10 quarters. In the trailing four quarters, Hilton’s earnings surpassed the Zacks Consensus Estimate, the average surprise being 5.6%. Backed by such impressive earnings trend, shares of the company have gained 15.8% over the past year against the industry’s collective decline of 0.4%.

Let us find out how the company’s top and bottom-line results would shape up in the second quarter of 2019.

Unit Expansion to Aid Revenues

In a bid to maintain position as the fastest-growing global hospitality company, Hilton is continuing to drive unit growth. During the first quarter of 2019, the company opened 85 hotels. It also achieved net unit growth of 10,000 rooms, indicating roughly 41% increase from the prior-year quarter. During 2018, Hilton launched more than 450 hotels, taking room count to more than 66,000, and achieved net unit growth of nearly 57,000 rooms, marking an increase of 10% from the same period of 2017.

We believe that this continued unit expansion has led Hilton to witness revenue per available room (RevPAR) growth in the second quarter of 2019. The company’s system-wide comparable RevPAR increased 1.8% in the first quarter. This trend is likely to have continued in the second quarter as well. Resultantly, the Zacks Consensus Estimate pegs second-quarter system-wide RevPAR growth at 0.8% on a year-over-year basis. The company projects second-quarter system-wide RevPAR to increase 1-2% year over year.

Backed by RevPAR growth, Hilton’s total revenues in the second quarter is also likely to have increased on a year-over-year basis. In the first quarter, revenues increased 6.3% from the year-ago quarter. The Zacks Consensus Estimate pegs second-quarter revenues at $2.5 billion, suggesting 6.8% growth from the year-ago quarter’s reported figure.

How Will Earnings Shape Up?

Despite higher operating expenses, significant rise in RevPAR is likely to have driven earnings in the second quarter of 2019. In the first quarter, Hilton’s adjusted earnings increased 16% year over year. This upside trend is likely to have continued in the second quarter as well. For second-quarter 2019, the company anticipates adjusted earnings between 98 cents and $1.03 per share.

The consensus estimate pegs the quarter’s earnings at $1.01, indicating a 44.3% increase from the prior-year quarter’s reported figure.

What Does the Zacks Model Unveil?

Our proven model does not show that Hilton is likely to beat earnings estimates in second-quarter 2019. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. Zacks Rank #4 or 5 (Sell-rated) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Hilton has an Earnings ESP of -0.38% and a Zacks Rank #4 at present.

Hilton Worldwide Holdings Inc. Price and EPS Surprise

Stocks With Favorable Combinations

Here are a few stocks from the Consumer Discretionary sector that investors may consider as our model shows that these have the right combination of elements to post an earnings beat in the second quarter:

Marriott Vacations (NYSE:VAC) has an Earnings ESP of +2.48% and it currently carries a Zacks Rank #3. The company is scheduled to report quarterly numbers on Jul 31, after the market closes. You can see the complete list of today’s Zacks #1 Rank stocks here.

SeaWorld (NYSE:SEAS) has an Earnings ESP of +11.01% and a Zacks Rank #3 at present. The company is scheduled to report quarterly numbers on Aug 6, before the opening bell.

Melco Resorts (NASDAQ:MLCO) currently has an Earnings ESP of +27.12% and a Zacks Rank #2.

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