Will Solid Global Presence Drive Hilton's (HLT) Q4 Earnings?

Hilton Worldwide Holdings Inc. (NYSE:HLT) is scheduled to report fourth-quarter numbers on Feb 14, before market opens.

Relentless expansion and efforts to fortify global presence make Hilton a major hotelier, which is continuously gaining momentum and is set to become the world's largest hospitality company.

However, significant international presence makes the company vulnerable to global economic conditions and currency translation.

We note that the stock has rallied 30.3% in the last six months, significantly outperforming the industry’s gain of 27.2%.

Let’s find out what is in store for Hilton in the to-be-reported quarter.

Currency Translation Likely to Dent Earnings

The consensus estimate predicts earnings of 44 cents for the fourth quarter, suggesting a 37.1% decline from the year-ago quarter. Hilton’s guided range for fourth-quarter earnings was 41 cents to 45 cents.

The company’s significant international presence exposes it to fluctuations in exchange rates which may hurt earnings in the to-be-reported quarter. Since, Hilton’s net income is mostly sourced from foreign subsidiaries and franchisees, its bottom line may remain under pressure, given a stronger dollar.

Top-Line Forecast Bleak

The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $2.26 billion, reflecting a 22.6% year-over-year decline. We believe that this projected revenue decline is due to weak anticipated revenue per available room (RevPAR) growth.

In the United States, RevPAR growth is being dented by softer group performance and weakness in oil and gas markets, despite good leisure transient trends. In fact, the company continues to forecast U.S. RevPAR growth toward the low half of its 1%-3% system-wide range. The consensus estimate for fourth-quarter RevPAR is pegged at $100 million, same as the year-ago quarter. It is also likely to decline 13.8% from the prior quarter.

In the Middle East, political unrest, lower government spending and increased hotel supply continue to hurt tourism. In fact, for 2017, the company expects RevPAR growth to be flat to slightly positive in the region. Also, a cooling Chinese economy might hurt discretionary spending as well as travel. Further, business conditions in Europe are plagued by economic uncertainties in the northern region and deflation in the Eurozone.

Our Quantitative Model Predicts a Beat

Hilton has the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The company has an Earnings ESP of +0.13%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Hilton has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Hilton Worldwide Holdings Inc. Price and EPS Surprise

Stocks to Consider

Here are a few stocks from the Consumer Discretionary sectorthat investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Choice Hotels (NYSE:CHH) has an Earnings ESP of +1.84% and a Zacks Rank #2. The company is scheduled to report its quarterly numbers on Feb 20.

MGM Resorts International (NYSE:MGM) has an Earnings ESP of +42.50% and a Zacks Rank #2. The company is scheduled to report its quarterly numbers on Feb 20.

Churchill Downs (NASDAQ:CHDN) has an Earnings ESP of +29.03% and a Zacks Rank #1. The company is expected to report its quarterly numbers on Feb 27.

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