Shares of Hilton Worldwide Holdings Inc (NYSE:HLT) have tripped all-time highs this morning following a breakout on a bevy of good news.
To start, Hilton sold its Waldorf Astoria New York property to Anbang Insurance Group for $1.95 billion. Hilton will continue to manage the Waldorf under a 100-year management agreement and has plans for a major renovation to restore the property.
Hilton reinvested much the proceeds from the sale after agreeing to buy San Francisco’s Parc 55 hotel and four other Florida hotels for $1.76 billion. The Florida sites already operate under the Hilton umbrella, with two in Orlando and two in Key West.
Usually, when there is an “acquisition,” shares in the company that make the “bid” pull back, while a premium is placed on the takeover offer in shares of the other company. Such was not the case for Hilton, as the deals are going to unlock a lot of hidden value in Hilton that hasn’t been recognized by Wall Street.
Hilton will report earnings next week on Feb. 18, and Wall Street is looking for a profit of 18 cents per share on revenue of $2.72 billion. The range is tight, as the suit-and-ties have a high forecast of 19 cents per share and a low estimate for a profit of 17 cents per share. The revenue range is between $2.48 and $2.9 billion.
Hilton has topped Wall Street’s estimates the past three quarters by a 1 cents, 2 cents and 3 cents per share, respectively. However, in the year-ago quarter, Hilton missed by 6 cents per share.
It was no secret that the Waldorf Astoria sale had been in the works for months, but the news wasn’t being reflected in Hilton’s stock price. Now that the deal has closed, Wall Street has taken notice.
I have been bullish on Hilton and recommended call options in anticipation of today’s news. While Wall Street may have forgotten this was a done deal, I used the HLT April 29 calls to play the possible breakout on the news. Hilton shares were near $26 when I suggested going long these options at around 35 cents per share. Traders that entered the HLT options at that level may consider taking profits in half of their positions ahead of Hilton’s earnings announcement.
My near-target for HLT stock has been $28-$30, and momentum seems strong. Earnings are always tricky to trade, as there are a number of factors that come into play. However, a run to the higher end of my range seems within reach if Hilton announces a good quarter with a rosy outlook.
The HLT April 29 calls are “technically” out of the money, but the premium is building as shares make fresh 52-week and all-time highs. At $30, these options would technically be worth $1 if shares are at this level by mid-April. If HLT shares trade to $31 by mid-April, these options would be worth at least $2 and would still represent a 150% return from current levels.
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