Hilton Worldwide A Top Buy Idea At CLSA

Hilton Worldwide Holdings Inc HLT is nearing the completion of its planned spin-offs. Their completion is “crucial to unlock value and kickstart the next phase of capital return,” CLSA’s Jon Oh said in a report. He maintained a Buy rating on the company, with a price target of $27.

Discounted Valuation

The stock’s current valuation seems to be assigning a 22 percent discount on Hilton Worldwide’s OpCo fee stream, valuing it at $14 per share versus “our value” or $18 per share, analyst Oh noted. He added that even the $18 value was conservative, taking into account the FCF of about $1 billion being estimated for 2017.

The current valuation may be incorporating a negative RevPAR and unit growth of below 4 percent, Oh mentioned, while pointing out that his base case had estimates of 2.8 percent RevPAR and 6.4 percent unit growth.

While there is a chance [however unlikely] of RevPAR turning negative for 2017, the assumption of below 4 percent unit growth for Hilton Worldwide seemed “far-fetched given the medium term visibility of their 288k pipeline,” the analyst commented.

Share Buybacks

Oh believes that the completion of the spins is crucial to initiating the next phase of capital return, which would likely be via share buybacks. He estimated the authorization could be as high as 4 percent of stock per annum.

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