Hilton (HLT)

Total return at 5 years: -3.3%/year = -3.5% appreciation + 0.2% dividend. The target price ($289) is ex-dividend; the $3 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $269 · Multiples $235) is below the market price ($345).

Today — expensive, no margin of safety: at $345 trades ~46.9% above its value discounted to today (~$235); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$146.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($345) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (12.8%/year) above our base case (7.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$3.7 bn of owner earnings in year 5 (vs ~$2.8 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/NOPAT. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

An enterprise-level model (§3), the same construction as its archetype peer, Marriott. A hotel franchisor does not own the bricks — 99.5% of the system belongs to third parties — so its debt is not structural to a real-estate model and falls outside the closed list where the multiple is applied to earnings. The earnings being valued are NOPAT, before interest, and the bridge subtracts debt once: cash of US$1.064 billion and debt of US$13.4 billion as of June 30, 2026, against negative book equity of US$6,303 million from years of buybacks. The exit multiple does not shift on migration, because NOPAT sits in the same after-tax units as the archetype's band. Year 0 is the trailing twelve-month window through June 2026 (revenue US$12,485 million, operating income US$2,915 million, net income US$1,580 million, built by levels from the release: fiscal 2025 US$1,457 million plus first-half 2026 US$865 million minus first-half 2025 US$742 million). That earnings figure carries roughly US$115 million of special items that the following year's guidance no longer carries, which explains much of the year-1 jump. Year 1 anchors on the net income the company itself guides for fiscal 2026 — US$1,883 to 1,911 million, midpoint US$1,897 million — which is the second guidance anchor and the one that governs when valuing on a multiple of earnings; the path for years 2 through 5 is derived from modeled operating income less interest expense of US$0.684 billion plus other results of US$0.173 billion, calibrated so that year 1 reproduces that guided midpoint. The 10-Q for the second quarter of 2026 is already filed and fully incorporated into the XBRL as of this analysis's date, so no level-based re-anchoring is needed — the only thing the July 28, 2026 earnings release contributes is guidance, which lives in no other filing. Year 1 starts at 8.0% revenue growth, just below the trailing-twelve-month pace (+8.7%) and consistent with the company's own guidance for fiscal 2026: system-wide RevPAR at constant currency of +3.0% to +3.5%, net unit growth of 6.0% to 7.0%, and implied adjusted EBITDA growth of roughly 9.0% (from US$3,725 million in 2025 to the guidance midpoint of US$4,040-4,080 million). Because this model's +1-year window (Jul-2026 to Jun-2027) does not exactly match the guided fiscal 2026 year, guidance is used as a reasonable anchor for the level, with that caveat declared. The path decelerates smoothly to 6.5% by year 5, a pace consistent with a mature hotel franchise still penetrating geographies (36% of rooms are already outside the United States, and rising) without relying on meaningful capital investment of its own. Operating margin starts at 23.35% (TTM) and expands gradually to 24.85% by year 5, in line with the recovery already observed (21.2% in 2024 to 23.35% today) as higher-margin franchise and management fees grow faster than cost-reimbursement revenue, which is essentially zero-margin as an accounting pass-through (in 2025 it represented close to 59% of total revenue but contributed no operating income). Capex is minimal (US$80-101 million a year on more than US$12,000 million of revenue) and almost entirely maintenance, because system growth is funded by third-party owners, not Hilton. Share buybacks are the centerpiece of capital allocation: the diluted count fell from 277 million (2022) to 238 million (2025), a sustained net reduction of roughly 5.0% a year over three consecutive years, and 2026 guidance itself corroborates that pace (projected total capital return of US$3,500 million, with a minimum dividend of only ~US$135 million, implies a buyback of similar magnitude to the historical rate). The same buyback path (-5.0% annually) is modeled across all three scenarios, because it is a revealed capital-return policy and not a variable of the business. Recent buybacks (US$3,325 million over the trailing twelve months) exceed organic free cash flow (~US$2,000 million), funded in part by the issuance of US$1,000 million in senior notes in May 2026 — the company does not accumulate excess cash (accumulateCash=false): the excess is returned via explicit buybacks, not retained. The exit multiple is derived from the hotel-franchise archetype's band (18 to 24 times after-tax earnings, applied here to NOPAT), analogous to a restaurant franchisor's band given the same royalty-on-third-party-assets economics. The position within the band — 20.6x in the base case, the value the method's scoring rule returns — reflects a narrow but stable moat (against peers of comparable scale such as Marriott, IHG and Accor, with no evidence of a widening unit-economics gap) and a return on capital well above the 10% bar, though that return is mechanically amplified by negative book equity (US$-6,303 million) from years of buybacks funded in part with debt — the resulting invested-capital base is small (~US$6,000 million) against a business generating more than US$2,000 million of owner earnings a year.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $289 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $345, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $289 in 5 years plus $3 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $235. Against the current market price ($345), the margin of safety is -46.9% (trades above the maximum → a premium is paid) and the total return at that price would be -3.3% annually.

• Multiple within the band. The base case values the business at 45× on operating income, within the archetype's band.
• No wide margin of safety. The expected five-year return (~-3%) reflects a quality business trading near fair value.
• No discount catalyst identified. No evidence of missing buyers or motivated sellers was found.
• Operating leverage favorable to the multiple. The projected margin expansion sustains operating-income growth even with decelerating revenue.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (105%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Predictable cash generation. Growing, stable operating cash flow over the last four fiscal years.
• High return on capital. ~34%, well above the 10% bar, though amplified by negative book equity.
• Limited in-house reinvestment runway. System growth is funded by third parties; Hilton reinvests little own capital.
• Minimal capex relative to depreciation. Capex (US$80-101 million) is below depreciation and amortization, consistent with a genuinely capital-light business.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

RevPAR (price × occupancy) is the volume-price driver equivalent to a marketplace's take rate: it measures the health of the comparable system, which determines variable management fees and organic franchise-fee growth. Hilton Honors membership is the proxy for the strength of the direct channel: the company itself states that travel spend captured per member rises as members move up tiers, though membership growth alone is a level indicator, not evidence of a widening unit-economics gap.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Orderly deceleration. Revenue growth from 16.7% (2023) to 7.7% (2025), without sharp swings.
• Record development pipeline. 541,300 rooms in the pipeline, +6% year over year.
• Slight decline in the ownership segment. Ownership-segment revenue fell -1.75% year over year in 2025.
• Corroborating guidance. 2026 guidance (RevPAR +3.0-3.5%, net units +6.0-7.0%) confirms the projected trajectory.

• Capital-light model. 99.5% of properties are franchised or managed; growth is funded by third parties.
• Recurring, contracted revenue. Franchise and management fees on 10- to 30-year contracts.
• Cyclical exposure to travel. RevPAR and the pace of openings follow the economic and global tourism cycle.
• Low-margin accounting pass-through. 59% of consolidated revenue is cost reimbursement, with no meaningful contribution to operating income.
• Brand and geographic diversification. 28 brands in 144 countries, with a rising international share (36% of rooms).

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)4.3x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 105% of ROIC
• ✓Value creation (ROIC − 10% bar)+24pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.4x — no over-investment
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 1.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• High debt in absolute terms. US$13.4 billion of debt at a 5.03% weighted rate.
• Staggered maturities. No material maturities until April 2027 (US$600 million) and then until 2029.
• Negative book equity. US$-6,303 million, the result of years of share buybacks partly funded with debt.
• Available liquidity. US$1,894 million of available capacity under the revolving facility, undrawn.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Leadership continuity. Nassetta has led the company since 2007, including the private-equity period and the 2013 IPO.
• Capital allocation. 93% of capital deployed goes to buybacks, with minimal maintenance capex.
• Modest inside ownership. Directors and executives as a group hold 2.7% of the share count.
• Leverage within capital allocation. Recent buybacks (US$3.3 billion TTM) exceed organic free cash flow, partly funded with new debt.

• No clear catalyst for missing buyers or motivated sellers was identified: analyst coverage of Hilton is broad and its market value (~US$72 billion) is too large to suffer from lack of liquidity or coverage.
• 2024 net income was distorted upward by an unusually low effective tax rate (13.7% versus a normal 29.5%), which can create confusing year-over-year earnings-per-share comparisons if not normalized, but is not a source of market discount today.
• The current price already reflects a relatively generous multiple against the broader universe of asset-light franchises, consistent with the business's quality rather than with a pricing anomaly.

No identifiable source of Marks-style market discount (perception worse than reality) was found. The base-case expected return (~6.5% annual appreciation plus a modest dividend contribution) is consistent with a quality business trading near fair value, not with an opportunity offering a wide margin of safety.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -13%/year (-50% total): the margin of safety protects the downside. The bull (+3%/year, +19% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• AI disintermediation. Large language models could divert bookings away from Hilton's direct channels.
• Dependence on third-party owners. The system depends on third-party owners maintaining capital and solvency.
• Technology concentration. Data-center infrastructure concentrated in a single provider, with disaster recovery only in cold standby.
• Legal risk from agency doctrine. Possible termination of management contracts without express contractual cause under certain jurisdictions.
• Debt-funded buybacks. The pace of capital returns exceeds organic free cash flow, increasing leverage if demand slows.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 34% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 7% at a multiple/growth of 6.4 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 4% (EBIT/EV) + ROIC 34% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 13% vs our 7%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -13%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, switching costs, efficient scale → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price demands 13% growth, far above our 7% — heroic assumptions.