When the novel coronavirus first reared its ugly head on America, it came as little surprise that the hotel industry crumbled under the pressure. With travel grinding to a halt because of fears of infection, this sector became almost irrelevant overnight. Unfortunately, the downfall didn’t spare more affluent brands like Hilton Hotels (NYSE:HLT). From the beginning of February to March-end, Hilton stock dropped 37%.
But from early April, shares started to pick up again. While the trajectory hasn’t exactly been clean, it’s clearly positive, featuring a series of higher highs and higher lows. No matter how ugly the circumstances are, short of an apocalyptic event, Americans are a resilient bunch. Thus, it also wasn’t surprising that market bulls supported the recovery narrative of Hilton stock.
Recently, the faithful found their just rewards. According to data from the U.S. Department of Commerce, seasonally adjusted May retail sales jumped 17.7% against the prior month. This was yet another piece of evidence that the economy is on the path to recovery, with the May jobs report earlier providing confirmation for the broader bullish thesis.
Although the surge in retail sales isn’t a direct catalyst for Hilton stock, prospective HLT buyers shouldn’t dismiss it. For one thing, the breakdown of consumer sentiment is significant. Yes, on a year-over-year basis, the usual suspects – food and beverages and online retailers – enjoyed substantial growth.
However, the robust rise in other discretionary sectors – apparel, home furnishings, and restaurants – is in some ways more encouraging. Though these segments have a longer road to full recovery, they also indicate that consumer fears are subsiding.
That’s really been the question for HLT stock: will people travel?
Encouraging Data Abounds for Hilton Stock
To be fair, I don’t want to jump to wholesale conclusions. Just because people are out and about buying various products does not mean they will travel to a far-off place and check into a hotel, let alone a pricey one like Hilton.
However, that most retail segments saw tremendous growth over the prior month indicates a shift in consumer behaviors. At the time when the pandemic first began rippling through the country in earnest, many consumers immediately shut down. For the most part, Americans obeyed stay-at-home orders for all but essential activities.
But the Commerce Department’s latest report firmly implies that people are tired of their months-long house arrest. While they’re taking measures such as wearing masks and engaging in social distancing, millions are venturing out for non-essential purposes.
Naturally, you would expect this trend to progress, barring a severe second wave “attack.” Thus, based on the data, Americans will likely take baby steps toward the travel industry, auguring well for Hilton stock.
If that wasn’t enough to convince you, take a look at the Transportation Security Administration’s checkpoint travel numbers. Between June 10 through June 15, more than 2.92 million people traveled via airlines. Granted, the average capacity during this period is roughly 19% that of the year-ago level. However, it’s a huge improvement over the volume between June 1 through June 9, which was only about 15% of the year-ago volume.
Also, please note that in the entire month of April, only 3.29 million people crossed through TSA security checkpoints. For the first half of this month, we have over 6.2 million passengers. Given the context, this is an incredible rush of consumers, which again paints Hilton stock in a positive light.
Hilton’s Core Clients Provide Mitigation
As you know, Hilton doesn’t cater to the cheap motel crowd. In 2019, the company’s average daily rate was $144.79. This is a little more than 10% higher compared to the average daily rate of all hotels in the U.S. in the same year.
In this economic environment, Hilton’s more affluent base will be key to HLT’s future success. After all, white-collar workers haven’t suffered nearly as much in this crisis as lower-income workers. That’s helped in large part because the former has been able to work remotely.
Also, the company’s guest demographics is a net positive for Hilton stock. First, most of their guests fall into the 30 to 49 years category, which are essentially prime earning years. But HLT’s second-biggest demo is the 18 to 29 years crowd. Based on what we know about Covid-19, the older age groups, especially for those who have underlying health conditions, are most at risk for serious complications from the disease.
Ultimately, if you’re going to gamble on a hotel stock, pick HLT. First, the underlying fundamentals are steadily improving. Second, Hilton has attributes that give it some immunity to this sector’s greatest challenges.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.