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A Hilton Get-Together

Investor interest in Hilton Hotels (HLT), now the world's largest hotelier, is heating up. Before its February acquisition of Britain's Hilton Group, which owned the Hilton name outside the U.S., Hilton didn't get the attention it deserved on the Street, say analysts. Unlike Marriott (MAR) or Starwood (HOT), Hilton was perceived mainly as a domestic outfit, having sold its international operations 40 years ago. Excluding gambling establishments, the British Hilton Group included 393 hotels, two-thirds of which carry the Hilton name. In the months since the big buy, analysts have raised their profit forecasts, and Hilton's stock has jumped from 18 in November to 28.82 on May 8. "Hilton's U.S. business is robust. The outlook for demand, supply, and pricing is favorable and should remain so for several years," says Robert LaFleur of Susquehanna Financial Group. Demand for rooms is rising because business spending has picked up, he notes, while construction has lagged. Overseas is the new growth area for Hilton, says LaFleur, who recently boosted his 2006 earnings forecast from $1.05 a share to $1.12, and his 2007 estimate from $1.30 to $1.40. "The combined Hilton is a formidable competitor," he says. LaFleur has a "positive" rating on the stock. Celeste Mellet Brown of Morgan Stanley (MS), which does business with Hilton, wrote in a recent note to clients: "We see more value in Hilton than in any of the other brands." She expects the Hilton Hotels/Hilton Group merger to result in "true revenue synergies." Brown, who rates Hilton "overweight," has upped her yearend price target from 34 to 36.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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