Investors are betting on Hilton shares to weather the pandemic – here’s why

Hilton hotels (NYSE: HLT) is among the most downcast stocks in the coronavirus liquidation, but investors are waiting for it to take advantage of the recovery and outperform rivals on its wider margins. Higher margins would allow Hilton to offer larger discounts to customers once business travel resumes after the pandemic.

The chain, which manages nearly 6,000 hotels in 117 countries, is up just over 7% in the afternoon trade today at $ 77.50, and is up 25% over the past five days. However, the group is down 30% year-to-date, reflecting the impact of travel restrictions caused by the pandemic on the travel industry.

However, billionaire investor Bill Ackman has bought “about $ 2 billion in stocks” in the past ten days, supporting strong companies to take market share from rivals as they emerge from the health emergency. The chief executive of New York hedge fund Pershing Square has picked up shares in many companies including Starbucks, Berkshire Hathaway and Hilton.

“We are very bullish and think that there are obviously some companies that we like more than others,” Ackman told Yahoo Finance on Monday. “You have to have a strong balance sheet to withstand today’s environment. “

Hotel stock fundamentals strengthened after a $ 500 billion stimulus package for struggling companies to deal with fallout from the coronavirus outbreak – these companies would have easy access to liquidity thanks to Fed loans against equity participation to cover the wages, salaries and benefits of its employees.

Gina Sanchez, chief executive of fund manager Chantico Global, said she was confident in the recovery of hotel stocks, preferring Hilton shares to Marriott (NASDAQ: MAR) to take advantage of the recovery from the decline in the stock price over the past month.

Hilton outperforms Marriott because of its high margin according to Gina Sanchez. “The hotel portfolio that I think has the best quality will be something like Hilton. Hilton has very, very high operating margins, which means they can drastically reduce them. Marriott was much more in debt in this regard. So I think Hilton, out of all of those things, looks good on a number of levels, ”she said.

Nomura provides buy ratings for Hilton shares, citing a strong cash position and fee-based business model as a key weapon to weather most economic stresses. Its analyst Harry Curtis is optimistic about Marriott and Hilton. “Both companies have enough cash and revolvers to withstand this downturn for at least 24 months, and they have additional sources of liquidity if needed,” said Harry Curtis.

However, Bill Baruch, chairman of investment firm Blue Line Capital, is down on the hotel industry as a whole. “I just don’t think that’s a space you need to be in right now. Here’s the thing, hotels, on the whole, are oversized. There are already too many. Now you are cutting travel, you are cutting discretionary spending, ”Baruch told CNBC on Wednesday. “There are still too many uncertainties in the United States at this time.”

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