Deutsche Bank upgrades Hilton to buy as expectations reset

Investing.com -- Hilton Worldwide shares have come under pressure over the past month, but Deutsche Bank said investor expectations have now largely reset, creating a more attractive entry point as hotel demand remains resilient and the company's valuation has become more reasonable.

The bank noted that Hilton's shares have declined about 7% over the past month even as its forward adjusted EBITDA estimates have remained stable to modestly higher, increasing by roughly 50 basis points. That disconnect has prompted Deutsche Bank to take a more constructive view of the stock.

Deutsche Bank upgraded Hilton, which has a market capitalization of about $71 billion, to Buy from Hold and raised its price target to $365 from $363, implying about 16% upside from current levels. Analyst Steven Pizzella said the combination of healthy revenue-per-available-room trends, a constructive demand outlook and a more reasonable valuation could support the stock over the next six to 12 months.

The bank said industry RevPAR trends remain healthy, suggesting that hotel operators continue to benefit from underlying demand despite concerns around the broader economic outlook. Deutsche Bank also sees the forward demand environment as supportive, giving Hilton room to sustain operating momentum.

The recent decline in Hilton's shares has also helped reduce what Deutsche Bank viewed as elevated investor expectations. With earnings estimates holding up rather than deteriorating alongside the stock, the bank believes the market has already absorbed much of the potential disappointment that had been reflected in the shares.

Deutsche Bank expects several factors to drive the stock higher over the coming quarters. Continued strength in RevPAR, a favorable demand environment and the potential for earnings expectations to remain stable or improve could provide support, while the lower valuation gives investors greater room for upside.

The bank described the setup as potentially a “win-win” scenario over the next six to 12 months, with operational performance remaining solid while investor expectations have become more manageable.

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