February 8, 2021 BARRON’S 15
$3.3 billion in cash, providing what the
company says is sufficient liquidity to
get through the crisis. As of Sept. 30,
its long-term debt totaled $10.4 billion.
One concern: As of Sept. 30, the
company’s net debt to Ebitda ratio was
a lofty 5.8 times. The company aims to
get that ratio back to the prepandemic
range of three to 3.5, a realistic goal once
travel picks up.
H
ilton also was burning cash
last year, including about $
million in the third quarter.
But “we’re not that far away
from break-even,” says Jacobs. “We
need occupancy to get up a little higher
systemwide to generate a little bit
more revenue.”
Another plus for Hilton is its devel-
opment pipeline, a key growth driver
for hotel companies. Net unit growth,
which measures the number of rooms
added, minus any removals, grew by
about 6.5% in 2019. But even as
Covid-19 halted construction on some
projects in the pipeline—many of them
in growing overseas markets such as
China—Hilton managed 5.1% last year.
The company has said that it can
boost its net units by 4% to 5% for the
next several years. Bellisario wrote
recently that he expects Hilton’s 2020
net-unit growth and its forecast to lead
the sector, supporting “our positive
view of the shares.”
Perhaps the toughest part of the
bull case for Hilton is valuation, which
has to be viewed through the prism of
a once-in-a-century pandemic and
lower-than-normal earnings estimates
over the next few years. Hilton recently
traded at nearly 17 times enterprise
value to estimated 2022 Ebitda,
according to Bloomberg.
That’s expensive, but “we’ve never
come through stuff like this,” says
Crow. His price target of $125 assumes
an enterprise value to Ebitda multiple
that is stretched but uses “trough earn-
ings,” as he puts it.
Then there’s business travel, which
in more normal times accounts for
about 70% of Hilton’s business. If
that doesn’t start to claw back this
year, the stock is likely to sell off
sharply.
Still, Covid vaccines are being
rolled out, and there are signs of
pent-up demand for business travel.
Katz of Jefferies remains optimistic.
Hilton, he says, is a “high-quality
name” that “you can just own forever
and you will continue to wind up in
better and better places.”B
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