We expect Virginia-based hotelier Hilton Worldwide Holdings Inc. ( HLT ) to beat expectations when it reports fourth-quarter and full-year 2014 results on Feb 18, before the opening bell. Last quarter, the company posted a positive earnings surprise of 5.88%. Let's see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Hilton is likely to beat earnings because it has the right combination of two key components.
Zacks ESP : Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +5.56%. This is a very meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank : Hilton has a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Hilton's Zacks Rank #2 and +5.56% ESP makes us confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
Hilton has seen strong U.S. revenue per available room (RevPAR) in the first three quarters of 2014 and we expect the trend to continue in the fourth quarter as well. Hilton's geographic exposure in the U.S., as well as its improving group business trends, will continue to be the major RevPAR drivers. The company has surpassed the Zacks Consensus Estimate for sales in three out of the past four quarters reported so far this year.
Internationally, Hilton is aggressively expanding in high-growth emerging markets like China. Despite the slowdown in the Chinese economy, we believe Asia Pacific will be able to boost revenues, primarily backed by higher tourism numbers.
However, we are concerned about the sluggish macroeconomic environment in Europe, coupled with political uncertainty in certain parts of Africa, which might hurt Hilton's profitability in the to-be-reported quarter.
Stocks to Consider
Here are some companies in the same sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Extended Stay America, Inc. ( STAY ), with an Earnings ESP of +6.67% and a Zacks Rank #3 (Hold).
La Quinta Holdings Inc. ( LQ ), with an Earnings ESP of +40.00% and a Zacks Rank #3.
Smith & Wesson Holding Corporation ( SWHC ), with an Earnings ESP of +8.33% and a Zacks Rank #2.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.