The travel industry is still reeling as the world struggles to recover from the pandemic and the resulting global economic crisis. If you're an investor in Walt Disney (DIS 2.46%) or Hilton (HLT 3.73%), room service probably feels more like doom service these days.
Both companies posted brutal financial results last week, with red ink on the bottom line and steep double-digit dives on the top line. Disney and Hilton even suspended their dividend distributions earlier this year, a telltale sign that the new normal isn't going to be easy for either travel bellwether.
Given the recent lackluster performance, it's not a surprise to see both stocks trading lower year to date. Disney is down 9% in 2020; Hilton is checking in with a painful 22% drop. It may be hard to get excited about either investment in this climate, but these are still iconic travel brands that could bounce back sooner than you probably think. With Disney and Hilton both expected to return to profitability later this year, let's take a closer look to see which depressed stock is the better buy right now.
Hilton is a global hospitality giant. It watches over an empire of 6,200 properties with more than 983,000 rooms in 118 different countries. It owns a few of its hotels, but the majority are either just managed by Hilton or franchised across 18 different lodging brands.
With COVID-19 a global concern, the second quarter was a disaster. Revenue plummeted 77% for the period. Revenue per available room (or RevPAR) is a popular metric for sizing up the health of a hotelier because it considers occupancy levels and average daily rates. RevPAR for Hilton declined by 81% for the quarter.
Hilton had reopened 96% of its hotels by the end of last month. And that's great, but it doesn't mean that it's had to flick on its "No Vacancy" sign. The occupancy rate through all of the second quarter was a pitiful 22%. There are disparities among the brands. Hilton's most luxurious brand is Waldorf Astoria, and it's bringing up the rear with a 6.6% occupancy rate with many of its locations closed for the quarter. At the high end we have its extended-stay Home2 Suites by Hilton and Homewood Suites concepts with better than 40% occupancy, and that also makes sense as the extended-stay concept isn't a magnet for tourism or corporate travel.
Disney is a relative victor here with its revenue falling only 42% in last week's quarterly report, but it's not as if its travel-related business is faring any better than Hilton's these days. Disney's theme parks segment (lumped together with consumer products and other experiences) was 85% below where it was a year earlier. With Disney World and Disneyland closed for the entirety of the three-month period, it's not a surprise to see consumer products doing the heavy lifting. Disney World in Florida opened in mid-July, two weeks after the end of the quarter.
Disney is still the better buy here. Theme parks will be slow to come around, and multiplex audiences aren't likely to show up to Disney theatrical releases the way they used to for some time. But Disney's media networks segment has been a stabilizing force. With consumers spending so much time at home, it's helping ABC, the Disney Channel, and its majority-owned ESPN stay relevant. Disney+ has been a runaway success since launching just nine months ago.
Both companies checked in with huge reported losses, but Disney was able to surprise the market with a small profit on an adjusted basis. The red ink shouldn't last long for either company. Analysts see Hilton returning to profitability for the current quarter, and Disney following a quarter later.
It would be a shock if the payouts don't return by early next year, even if the dividend yields were never that impressive for either company. Capital appreciation has always been the star attraction for Disney and Hilton, and with the travel industry likely facing a long recovery, Disney is the safer and better buy.