Morningstar | Hilton's Brand Advantage Continues to Strengthen, Despite Economic Slowdown Concerns
Hilton's fourth-quarter results offered support of our long-held view that its brand advantage is strengthening, evidenced by revPAR share gains, loyalty growth, and unit expansion. The results also highlighted that economic pressure has increased in China and the U.S. over the past three months, leading Hilton to lower its 2019 revPAR guidance to 1%-3% from 2%-4%, which moves the target closer to 1.5% revPAR growth estimate. We don't expect to materially change our $82 Hilton valuation, and view shares as fairly valued. We see narrow-moat Wyndham with more attractive margin of safety.Hilton's brand is strengthening, supported by global revPAR share gains of around 100 basis points in 2018. In the U.S., revPAR index (a figure over 100% implies share gains) share was just over 114%, which was up 80 basis points, while the metric in EMEA finished 2018 at 116%, up about 200 basis points. Meanwhile, APAC's 2018 revPAR index was 115%, up nearly 300 basis points. The company's loyalty program also grew a healthy 20% to 85 million members (trailing only Marriott and InterContinental's 100 million plus). Hilton's ability to drive revPAR share gains and membership aid pipeline growth, which, at 364,000 rooms, represents a market leading 40% of its existing base, supporting our long-term mid-single-digit unit growth forecast (above the 2% long-term U.S. industry supply growth).
There remain signs of economic contraction causing slowdown concern in China and U.S. travel. Hilton's fourth-quarter revPAR growth of 2% was at the low end of its 2%-3% guidance, as U.S. and China revPAR grew just 1.1% and 5%. Europe is showing more resiliency with revPAR growth of 7.2% in the fourth quarter, with strength expected to continue in 2019. As with last quarter, we believe that uncertainty around global tariffs might be creating some pause in U.S. corporate travel (which we think represents the vast majority of Hilton's room night stays).
We maintain our long-held view that we are in the later innings of this hotel cycle. We continue to expect slowing revPAR growth in 2019 followed by negative revPAR growth in 2020.
Hilton Worldwide Holdings is a holding company. Through its subsidiaries, the company is engaged in hospitality with operations organized in two operating segments: management and franchise, which includes all of the hotels the company manages for third-party owners, as well as all franchised hotels operated or managed by someone other than the company; and Ownership, which includes hotels that the company owned or leased or that are owned or leased by entities in which the company owns a noncontrolling financial interest. Hilton Honors is the company's guest loyalty program that rewards guests with points for each stay at nearly all of its properties, which are then redeemable for free nights and other goods and services.
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