Hilton’s (NYSE:HLT) most recent results reinforce our view that the company’s robust value proposition and asset-light, fee-based business model should allow the company to compound earnings per share at a mid-to-high teens growth rate for many years into the future. This quarter, Hilton grew units more than 7% contributing to 12% franchised and management revenue growth, 12% EBITDA growth and 19% earnings per share growth. Revenue per available room (“RevPAR”) grew 1.8% this quarter despite softness in the overall industry as Hilton realized strong market share gains across all brands and major regions.
During the company’s earnings call, management noted that it would expect free cash flow to grow even in the event Hilton were to experience a 5% to 6% RevPAR decline. Management’s comments are consistent with our view that the combination of Hilton’s fee- based business model and its large unit development pipeline should insulate the company from even a meaningful short-term decline in RevPAR. While Hilton’s shares have appreciated 28% this year, the shares currently trade at 24 times consensus analyst estimates for 2019 earnings, a discount to the historical average, and below our estimate of the company’s intrinsic value based upon its high-quality, predictable cash-flow stream and strong future growth potential.
From Bill Ackman (Trades, Portfolio)'s first-quarter 2019 Pershing Square shareholder letter.
