Hilton Worldwide (HLT) to Join Prestigious S&P 500 Benchmark

Hotel company Hilton Worldwide Holdings Inc. HLT is scheduled to join the coveted S&P 500 index prior to the open of trading on Jun 19.

Notably, Hilton will be replacing Yahoo! Inc. YHOO which is expected to convert to a publicly traded, non-diversified, closed-end management investment company that is ineligible for inclusion in the S&P 500. In fact, Yahoo is expected to sell its operational business to another S&P 500 constituent – Verizon Communications Inc. VZ.

Consequent to the news release on Jun 9, shares of Hilton have gained nearly 2%. Notably, Hilton shall be added to the S&P 500 GICS (Global Industry Classification Standard) Hotels, Resorts & Cruise Lines Sub-Industry index.

With a portfolio of 500 leading companies, that have roughly 80% coverage of the available market capitalization, the S&P 500 is an imperative metric for the U.S. equities. In fact, the index is considered to be ‘the best single gauge for large-cap U.S. equities’. It could thus be a great boost for those who are already invested in Hilton.

Moreover, in January, Hilton completed the spin-offs of Park Hotels & Resorts, Inc. PK and Hilton Grand Vacations Inc. HGV, resulting in three independent, publicly traded companies. On the same day, the company effected the previously announced 1-for-3 reverse stock split. All these changes are expected to make Hilton a fee-based, capital efficient, and resilient business having enormous growth potential worldwide.

Post the split on Jan 4, the company’s shares have rallied 13.5% while the S&P 500 market recorded a gain of 7.6%.

Notably, last quarter, the company reported robust results with both earnings and sales beating the Zacks Consensus Estimate. Also, system-wide comparable RevPAR (Revenue Per Available Room) increased 3.0% year over year in the quarter on a currency neutral basis.

We expect Hilton’s geographic exposure in the U.S., solid transient business as well as its improving group business trends to continue to drive RevPAR, going ahead. Further, the company’s performance is expected to be buoyed by strong unit development and tremendous growth in loyalty program given its scale, size, industry-leading brands and commercial platform.

However, Hilton’s international presence makes it vulnerable to lingering political uncertainties and economic downturns in certain parts of the world. Meanwhile, unfavorable currency translations could also continue to hurt the top line.

Despite the headwinds, we believe this Zacks Rank #2 (Buy) company’s addition to the S&P 500 is a major positive, which should aid in enhancing share price returns. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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