Hilton Worldwide Holdings Inc. HLT is benefiting from robust booking trends against the backdrop of an increased discretionary spending environment. Also, its focus on unit expansion growth, capital-light business model and loyalty program is noteworthy.

The shares of this hospitality company have gained 12.7% in the past six months, outperforming the Zacks Hotels and Motels industry, the Zacks Consumer Discretionary sector and the S&P 500. The detailed price performance is shown in the chart below.

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The Zacks Consensus Estimate of the company’s 2025 earnings per share (EPS) has trended down in the past seven days to $7.85 from $7.87. However, the estimated value indicates 12.2% year-over-year growth. Furthermore, the earnings estimates for the first quarter of 2025 also indicate 7.8% year-over-year growth. The company’s earnings surpassed expectations in each of the trailing four quarters, with the average surprise being 5.8%.

However, headwinds in the form of softer demand trends in China, persisting inflation and lingering macro risks are restricting HLT’s prospects to some extent. These aspects are likely to hinder the company’s bottom-line growth moving forward.

Let us discuss the factors why investors must retain this Zacks Rank #3 (Hold) stock for now.

What’s Driving Hilton’s Growth?

Improving Demand: With the trends for leisure activities normalizing globally, Hilton is witnessing an increase in leisure and business travel demand. This growth is reflected in the robust booking trends across its global product portfolio, mainly driven by strong demand for both corporate and social meetings and events.

Backed by these tailwinds, in the third quarter of 2024, the company’s system-wide Revenue per Available Room (RevPAR) increased 1.4% year over year, with business transient RevPAR rising 2%, thanks to large corporations and small-to-medium-sized businesses. Driven by robust group bookings, continued recovery in business transient travel and supportive calendar shifts, the management forecasts a fourth-quarter system-wide RevPAR (on a currency-neutral basis) increase in the 1-2% band on a year-over-year basis.

Global Expansion Efforts: In a bid to maintain its position as the fastest-growing global hospitality company, Hilton is continuing to drive unit growth. In third-quarter 2024, it opened 531 new hotels and achieved 7.8% net unit growth. As of Sept. 30, 2024, Hilton's development pipeline comprised nearly 3,525 hotels, with almost 492,400 rooms across 120 countries and territories, including 28 countries and regions where it currently has no running hotels.

The recent milestones touched by the company include the opening of the 8,000th Hilton hotel globally and expanding to 900 hotels in Asia-Pacific and EMEA. Furthermore, on March 14, 2024, HLT acquired the Graduate Hotels brand from Adventurous Journeys Capital Partners to boost its presence in the lifestyle hotel market. This was followed by the acquisition of a majority controlling interest in Sydell Group to expand the NoMad Hotels brand globally, facilitating entry in the luxury lifestyle hotel market. Hilton envisions developing up to 100 NoMad properties worldwide, with approximately 10 already in advanced discussions with Sydell.

Capital-Light Business Model: Hilton has successfully transformed into a capital-light operating business, backed by the spin-offs of a portfolio of hotels and resorts as well as its timeshare business. Post-spinoff, the company expects to be a resilient, fee-driven business with disciplined strategies. The focus is expected to be on growing market share, units and free cash flow per share as well as preserving the company’s strong balance sheet and accelerating return of capital. During the third quarter of 2024, the company repurchased 3.3 million shares of its common stock worth approximately $727 million. Through October, it returned $2.4 billion to its shareholders through a combination of share buybacks and dividends.

What’s Restricting HLT Stock’s Momentum?

Softer Trends in China: During the third quarter of 2024, RevPAR in China declined 9% year over year. The drop in RevPAR was due to difficult year-over-year domestic travel comparisons, compounded by disruptions from typhoons and limited international inbound travel. Going forward, the company remains cautious of a macro slowdown in China.

Persisting Macro Risks: The current economic environment, including elevated levels of inflation and interest rates, is likely to have posed challenges to the execution of Hilton’s growth strategy, leading to delays in openings and new development.

Furthermore, the consumer demand for services is closely linked to the performance of the general economy and is sensitive to business and personal discretionary spending levels. The decline in consumer demand due to adverse general economic conditions, poor travel patterns, lower consumer confidence and high unemployment can lower the revenues and profitability of Hilton-owned properties.

Key Picks

Here are some better-ranked stocks from the same sector.

Strategic Education, Inc. STRA currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

STRA has a trailing four-quarter negative earnings surprise of 40.4%, on average. The stock has gained 5.6% in the past year. The Zacks Consensus Estimate for STRA’s 2025 sales and EPS indicates growth of 4.9% and 17.6%, respectively, from the year-ago levels.

Trip.com Group Limited TCOM presently sports a Zacks Rank of 1. TCOM has a trailing four-quarter earnings surprise of 42.8%, on average. The stock has surged 87.3% in the past year.

The Zacks Consensus Estimate for TCOM’s 2025 sales and EPS indicates an increase of 15.1% and 7.4%, respectively, from the year-ago levels.

Universal Technical Institute, Inc. UTI currently sports a Zacks Rank of 1. UTI has a trailing four-quarter earnings surprise of 54.6%, on average. The stock has hiked 88.8% in the past year.

The Zacks Consensus Estimate for UTI’s fiscal 2025 sales and EPS indicates an increase of 10.1% and 28%, respectively, from the year-ago levels.

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