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Investing.com - JPMorgan initiated coverage on Hilton Worldwide (NYSE:HLT) stock Monday with an overweight rating and a price target of $282.00, representing a 13% upside from the current price of $248.86. According to InvestingPro data, the stock trades between its 52-week range of $196.04-$275.22.
The investment bank views Hilton as a high-quality company with high-single digit EBITDA growth potential and strong free cash flow conversion of 50-55%, which enables annual share repurchases of 5-6% to drive mid-teens EPS growth. This aligns with InvestingPro data showing impressive gross profit margins of 76.51% and current EBITDA of $2.516 billion.
JPMorgan highlighted Hilton’s 9%+ core fee algorithm, which reflects 6-7% net unit growth, 2-4% RevPAR growth, and royalty rate growth of more than 5 basis points per year. Non-RevPAR fees are growing at low double-digits and comprise approximately 20-25% of overall fees. The company’s revenue growth stands at 5.19% over the last twelve months, with analysts forecasting 6% growth for the coming year.
The firm identified Hilton’s industry-leading net unit growth as the most critical element of its growth algorithm, noting it is a key driver of the company’s premium valuation and contributes more than 60% of its annual EBITDA growth.
JPMorgan calculated that each percentage point of net unit growth equals more than $25 million in EBITDA for Hilton, and through discounted cash flow analysis, the firm arrived at a fair value of approximately $300 per share.
In other recent news, Hilton Worldwide Holdings Inc. reported its Q1 2025 earnings, surpassing analysts’ expectations with an adjusted EPS of $1.72, compared to the forecast of $1.62. However, the company’s revenue came in slightly below projections at $2.7 billion, missing the anticipated $2.73 billion. Despite the revenue shortfall, Hilton opened 186 hotels in the first quarter, marking a 20% increase year-over-year and maintaining a robust development pipeline with over 503,000 rooms. In response to these developments, Raymond (NSE:RYMD) James adjusted its price target for Hilton, reducing it from $290 to $275 while retaining an Outperform rating, citing lower-than-expected revenue per available room (RevPAR) as a factor. Jefferies, on the other hand, upgraded Hilton’s stock rating from Hold to Buy and increased the price target to $296, expressing confidence in the company’s business model and growth prospects. Hilton’s management remains optimistic about its future, projecting full-year adjusted EPS between $7.76 and $7.94 and adjusted EBITDA between $3.65 billion and $3.71 billion. The company also anticipates flat to 2% growth in full-year RevPAR and plans to maintain a 6-7% net unit growth in 2025.
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