In this article, we discuss the top 3 stock picks of Bill Ackman’s Pershing Square portfolio. If you want to read our detailed analysis of Ackman’s history, investment philosophy, and hedge fund performance, go directly to Bill Ackman’s Pershing Square Portfolio: Top 6 Stock Picks.
3. Hilton Worldwide Holdings Inc. (NYSE:HLT)
Bill Ackman’s Pershing Square’s Stake Value: $1,702,284,000
Percentage of Bill Ackman’s Pershing Square’s 13F Portfolio: 17.98%
Number of Hedge Funds: 44
Hilton Worldwide Holdings Inc. (NYSE:HLT) is a hospitality company with a portfolio of over 18 globally renowned brands that have a presence in over 122 countries through 6,700 properties. The McLean, Virginia-based corporation develops, franchises, leases, and manages these hotels and restaurants.
On January 10, Richard Clarke at Bernstein issued a target price of $161 with a Market Perform rating on Hilton Worldwide Holdings Inc. (NYSE:HLT) stock. The analyst thinks that investors need to be selective in picking stocks from the hospitality industry as the stocks are sitting at all-time highs. Clarke gave the stock a Market Perform rating due to the absence of positive catalysts in the short term.
Bill Ackman’s Pershing Square initiated a long position in Hilton Worldwide Holdings Inc. (NYSE:HLT) with a stake of over 10.9 million shares in Q4 2018. Since then the hedge fund has increased its holdings to nearly 12.9 million shares as of Q3 2021.
In the last year, the stock price of Hilton Worldwide Holdings Inc. (NYSE:HLT) has increased by 32% as of January 20, reflecting the lodging industry’s recovery following the COVID-19 pandemic. The stock has outperformed the S&P 500 Index, which experienced an increase of just over 23% during the same period.
Pershing Square revealed during the Q3 investor call that Hilton Worldwide Holdings Inc. (NYSE:HLT) is staging a rapid recovery following the COVID-19 pandemic. However, the organization is still not back to pre-COVID levels in terms of RevPAR, but it’s “getting close.” The hedge fund anticipates the RevPAR recovering to the pre-COVID level in 2022.
In its Q2 2021 investor letter, Pershing Square Holdings, Ltd. discussed its stance on Hilton Worldwide Holdings Inc. (NYSE:HLT). Here’s what the investment management firm said:
“While the hotel industry has been extremely negatively impacted by the COVID-19 pandemic, Hilton has done an excellent job navigating industry volatility, a testament to the company’s high-quality, asset light, high-margin business model and superb management team. From the moment the pandemic began, Hilton’s management team took decisive actions to ensure the company not only managed through what it knew would be a challenging period but also positioned the company to generate improved margins, cash flows and investment returns once the business recovers to pre-COVID-19 demand levels.
Industry RevPAR (the industry metric for same-store sales at a given hotel) bottomed in April 2020 and has shown sequential improvement every quarter as travel and mobility have recovered along with COVID-19 vaccine rollouts and a resumption in travel. In recent months, there is increasing evidence that a robust recovery scenario is underway, led by domestic leisure travel occasions which is currently trending above 2019 demand levels. For the first three weeks of July, the most recent data the company provided, RevPAR has already recovered to 85% of 2019 levels – a significant improvement over prior months driven by increased hotel occupancy and a rapid recovery in rate.
While management anticipates a moderation in leisure demand as we exit the summer, it expects the moderation in leisure travel to be offset by a more pronounced recovery in business transient travel occasions as offices reopen this fall. Although there remains near-term uncertainty in domestic travel given the increase in COVID-19 case numbers following the arrival of the Delta variant in the U.S., we believe that the medium-term outlook continues to point to a robust recovery scenario. Throughout the pandemic, Hilton took actions to reduce corporate expenses by about 20% compared to 2019 levels.
Simultaneously, the company provided resources and support to the Hilton owner community which further solidified Hilton as the preferred franchise partner, thereby expanding Hilton’s pipeline of units around the world.
In the most recent quarter Hilton affirmed its near-to-medium term outlook of mid-single-digit net unit growth, and a resumption of its historical 6-7% net unit growth beginning in 2023-2024, higher growth than competitors, and further evidence of Hilton’s unique business model.
We believe that Hilton will continue to grow its market share over time given independent hotels’ increased interest in seeking an affiliation with global brands, particularly in the wake of the pandemic. While the recovery may continue to be uneven, Hilton has made tremendous progress which will help it become an even more profi table and stronger business going forward.”
