Hilton's Quiet Period Expiration Provides Buying Opportunity

| About: Hilton Worldwide (HLT)
This article is now exclusive for PRO subscribers.

Trading Opportunity

Sunday, January 20 will marked the conclusion of the 40 day quiet period on underwriter research that began with Hilton Worldwide (NYSE:HLT)'s December 11 IPO. See our prior story here.

The end of the quiet period permits IPO underwriters to release research on HLT into the market; this often leads to a short-term rise in the price of shares. Since pricing at $20 per share (within the expected range of $18-$21 per share), HLT's stock has been relatively stagnant, fluctuating between $21.15 and $25.95 per share. HLT closed at $21.72 on January 13th.

The firm's lengthy all star list of underwriters, including BofA Merrill Lynch, Goldman Sachs, Deutsche Bank Securities, Morgan Stanley, Barclays Capital, Blackstone Advisory Partners, Raymond James, Castle Oak Securities, Credit Agricole Securities, Credit Suisse Securities, Drexel Hamilton, Robert W. Baird, HSBC Securities, JP Morgan, Macquarie Capital, Nomura Securities International, RBC Capital Markets, RBS Securities, Samuel A. Ramirez & Company, Citigroup Global Markets, Telsey Advisory Group, UBS Investment Bank, and Wells Fargo Securities, will attempt to shake the hotel giant's common stock prospects to life with a massive influx of positive information at the end of the quiet period.

Our past two years of research, along with research performed in recent academic studies, have empirically evidenced a correlation between the reputation and quantity of an IPO's underwriters and a temporary increase in the price of the firm's shares at the close of the quiet period.

HLT's massive force of underwriters should be able to provide the stock with a significant boost as the quiet period comes to an end. The short-term increase in price typically begins a few days ahead of the conclusion of the quiet period as savvy investors recognize the impending flood of positive information. These investors begin to buy up shares in advance, betting that the information released will lead to increased demand. These early buys create the perception of demand, placing upward pressure on the price of shares.


Hilton Worldwide owns and operates numerous, popular hospitality brands, including its flagship Hilton Hotels & Resorts, Conrad Hotels & Resorts, Waldorf Astoria Hotels & Resorts, DoubleTree, Embassy Suites Hotels, Home2 Suites, Homewood Suites, Hampton Inn, Hilton Garden Inn, and Hilton Grand Vacations. Hilton's lineup of 4,080 hotels, timeshares and resorts offer a grand total of 671,926 rentable rooms.

The Blackstone Group took Hilton private in 2007 and has since made significant improvements to the firm's operations, pushing it towards growth. Hilton's achievements under Blackstone include a 36% rise in the number of open rooms, a 25% increase in EBIDTA for the firm's critical management and franchise segment, and massive growth in the firm's presence outside the United States. Blackstone has also installed an exceptional new management team.

HLT faces competition from other international branded hospitality firms, as well as local and regional hospitality firms. Competitors include a wide range of brands that compete with HLT at various price levels, including Ritz Carlton, JW Marriott (NYSE:MAR), Four Seasons, St. Regis, Mandarin Oriental, Aloft, Holiday Inn (NYSE:IHG), Courtyard by Marriott, Hyatt (NYSE:H), and Sheraton. The firm's timeshares compete with the likes of Wyndham Vacations Resorts and Starwood Vacation Ownership (HOT).


President and CEO Christopher J. Nassetta has served Hilton Worldwide since Blackstone's 2007 takeover. He has significant hospitality experience, having previously served as President and CEO of Host Hotels and Resorts and as an Executive Vice President and COO of Host. He is a current member and a former Chairman of The Real Estate Roundtable a member of the Executive Committee of the World Travel & Tourism Council.

Conclusion For Investors

Despite Hilton's somewhat slow start in the market, the firm remains a solid long-term play as the economy continues to recover and provide more opportunities to the hospitality world. Blackstone has made impressive improvements to HLT, and its powerful new leadership team should be expected to continue to grow the firm. In the nine months ended September 30, 2013, net income attributable to stockholders grew 34% over the same period in 2012.

The firm's results are hard to argue with--and the end of the quiet period may be a timely time to get a piece of HLT.

Disclosure: I am long HLT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.