Classmate Discussion Thread Financial Analysis

Shawnee H

Hyatt Hotels Corporation (H) 

Revenue has increased each year since the low of 2020, with a rebound back above 2019 levels in 2021. Net income, however, has been slower to recover. Although net income is positive again, it dropped by over 50% last year and sat at a net profit margin of 3.3%. This change in net income and profit margin was due to a larger increase in operating expenses compared to revenue increases (18% and 13.17%, respectively). In contrast, Hilton Hotels Corporation Common Stock (HLT) had more net income last year and maintained a healthy net profit margin with higher earnings per share, despite being a smaller company in terms of revenue. Although Hilton seems to have a healthier income statement, Hyatt’s balance sheet seems healthier. Hilton may have higher return on assets and capital ratios, but its liabilities outweigh its assets. 

If choosing between investing in Hilton or Hyatt, Hyatt would be the safer investment given that they, like Hilton, are increasing revenues and, unlike Hilton, can cover their liabilities based on assets to liabilities ratio. As discussed in chapter 1, “a safe dollar is worth more than a risky one” (Brealey et al., 2023, p. 22). 

Additionally, according to the most recent quarterly update for “Hotels, Motels, & Resorts”, the main challenge impacting the hotel industry is a massive labor shortage, cited as being “over 196,000 less than pre-pandemic levels” ( First Research Industry Profiles, August 26, 2024). A labor shortage this large is likely to constrain revenue and increase labor expenses as companies attempt to hire and retain employees. Furthermore, the hotel industry is only expected to grow at an annual compounded rate of 5% over the next 4 years. Although 5% is a decent return for an investor, it is much less than one would hope, especially if pursuing a more aggressive stock portfolio. Considering this, younger and more aggressive investors should avoid investing in the hotel industry until the labor market and economy improve. 

Matthew 25 discusses the importance of wise investments  (Christian Standard Bible, 2018) . One should make the wisest investments possible with available information. Although investing in Hyatt is better than simply burying money, it does not seem to be the wisest choice if choosing single stocks. With that said, Hyatt’s inclusion could be useful to diversify and level out a portfolio. The choice for investment depends on the context of the purchase, as laid out above, with investment being wisest as a diversification effort. 

References 

Brealey, R. A., Myers, S. C., & Marcus, A. J. (2023).  Fundamentals of Corporate Finance (11th ed., p. 22) . McGraw-Hill. 

Hotels, Motels & Resorts – Quarterly Update 8/26/2024. (2024).  https://go.openathens.net/redirector/liberty.edu?url=https://www.proquest.com/reports/hotels-motels-amp-resorts-quarterly-update-8-26/docview/3097458963/se-2Links to an external site.  

Patterson, D. K., & Kelley, R. H. (Eds.). (2018).  The study Bible for women: Christian standard Bible. Holman Bible Publishers. 

Tessa H

            Hilton Worldwide Holdings Inc. (HLT) operates as a hospitality company in the lodging industry. Hilton currently ranks second in the hoteling industry with revenues of $8.5 billion, just behind the industry leader, Marriott International Inc. (Le, 2024). Hilton engages in both hotel management and licensing of its many brands, offering potential guests a range of options and price points to choose from. After the uncertainties of the COVID-19 pandemic, the hotels and lodging industry suffered from softened consumer demand in key global markets (Le, 2024). Continuing economic uncertainty contributes to slowing industry-wide growth in the present day. Demand for leisure activities has declined as consumers cut back on discretionary spending. However, the United States Government now seeks to strengthen international tourism, which may boost profits in the hospitality sector and support the creation of new jobs (Le, 2024; Oladipo & Jain, 2024). Companies in the hotel industry that maintain low operating costs will enjoy greater benefits in these times of economic uncertainty. This includes Hilton, which retains a 3.5% market share in the overall industry (Net Advantage, 2024a). Hilton currently resides in an uncertain position within the lodging industry, and potential investors must carefully consider the company’s prospects before making a decision.

            Financially, Hilton showcases a few unique strengths along with several glaring weaknesses.  Le (2024) cites industry strengths of high profit, low service concentration, and low imports. Hilton boasts additional strengths in the form of its multi-branding strategy and expansive hotel portfolio. However, Hilton appears to rely quite heavily on debt to finance its operations. Hilton’s debt-to-assets ratio for the year ended December 31, 2023, was 115.2% (Net Advantage, 2024a). Compared to the latest average for the lodging industry, 48.9%, Hilton resides in a dangerous spot (Net Advantage, 2024b). Hilton’s working capital deficit endangers the company, as it may become unable to pay off debts in a timely fashion. In recent years, Hilton’s current and quick ratio have significantly deteriorated (Net Advantage, 2024a). The company’s capital structure does not reflect the industry at large and, with a high degree of competition in the overall industry, Hilton presents a precarious situation (Le, 2024). These ratios measure a company’s progress towards its objectives and overall financial stability. Brealey et al. (2023) write that financial ratios relate to shareholder value in several ways, serving as key indicators of an organization’s financial position. Thus, examining ratios provides value and understanding for potential investors.

            Financial analysts and investors foresee that Hilton may continue to suffer financially in several ways. Nguyen (2024) warns that the entire industry may be facing a global slowdown. He points to Hilton’s unimpressive growth in revenues and uneven performance across its entire portfolio of hotel brands. Earnings per share (EPS) have fluctuated across the past five years, but the company has engaged in share repurchases in the previous two fiscal years to raise EPS (GlobalData, 2024). While Hilton may suffer from short-term stagnation in terms of revenue and EPS growth, Nguyen (2024) notes that Hilton presents strong “growth ambitions” and plans to expand its upscale and luxury segments in 2025 (para. 3). In addition, Hay (2024) notes that tens of thousands of workers at hotel brands across the United States have initiated strikes as contract negotiations stall. Workers across the country demand higher wages from Hilton, as well as fair staffing and workload policies (Hay, 2024). These developments have already impacted Hilton’s most recent earnings, as detailed in the company’s third quarter report (Mateer, 2024). Analysts predict that this may impact stock prices and Hilton’s overall financial health as employee relations continue to deteriorate and customer spending slows across the industry (Yahoo!Finance, 2024). Finally, Hilton’s dividend payouts have historically proven inconsistent, which may deter potential investors from engaging with the company (Net Advantage, 2024a). Because of these considerations and developments in the industry, a potential investor should be wary of investing in Hilton’s stock. An investor must recognize the financial turmoil in which Hilton may soon find itself while acknowledging the strengths and growth opportunities the company currently faces. The financial difficulties with debt and challenges of a decreasing EPS may well discourage potential investors from adding Hilton stock to an investment portfolio.

References

Brealey, R. A., Myers, S. C., & Marcus, A. J. (2023).  Fundamentals of Corporate Finance (11th ed.). New York, NY: McGraw-Hill Education.

GlobalData. (2024, October 11).  Hilton Worldwide Holdings Inc. Retrieved from https://explorer.globaldata.com/Company/Summary/hilton-worldwide-inc

Hay, A. (2024, September 2).  Holiday Disruption at US hotels as 10,000 workers strike. Reuters. https://www.reuters.com/world/us/holiday-disruption-us-hotels-10000-workers-strike-2024-09-02/

Le, T. (2024, October).  Hotels & Motels in the US – US 72111. IBISWorld. Retrieved October 23, 2024, from https://my.ibisworld.com/us/en/industry/72111/at-a-glance

Mateer, N. (2024, October 23).  Labor disputes contribute to Hilton’s slower-than-expected RevPAR growth in Q3. Hotel Dive. Retrieved from https://www.hoteldive.com/news/hilton-q3-earnings-2024-slower-revpar/730769/

Net Advantage. (2024a).  Hilton Worldwide Holdings Inc. (NYSE:HLT): Financials – Ratios. Retrieved October 23, 2024, from https://www-capitaliq-com.eu1.proxy.openathens.net/CIQDotNet/Financial/Ratios.aspx?CompanyId=29470

Net Advantage. (2024b).  Lodging: Key Stats & Ratios. Retrieved October 23, 2024, from https://www-capitaliq-com.eu1.proxy.openathens.net/CIQDotNet/Lists/KeyStats.aspx?listObjectId=100885830

Nguyen, K. P. (2024, October 23).  Hilton’s Growth in Jeopardy? Slashing 2024 Forecasts Amid Global Slowdown. Yahoo!Finance. https://finance.yahoo.com/news/hiltons-growth-jeopardy-slashing-2024-190348367.html

Oladipo, D., & Jain, A. (2024, October 23).  Hilton cuts 2024 room revenue growth forecast on slowing consumer spending. Yahoo!Finance. https://finance.yahoo.com/news/hilton-cuts-2024-room-revenue-101146771.html

Yahoo!Finance. (2024).  Hilton Worldwide Holdings Inc. (HLT). Retrieved October 23, 2024, from https://finance.yahoo.com/quote/HLT/

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