Is Hilton Worldwide Holdings Inc. a Buy?

Source: YCharts.

After a slumping start to 2016, shares of hotel giant Hilton Worldwide have recently picked up the pace, returning about 25% since early February. That tops the S&P 500, as well as hotel peers Marriott International and Wyndham Worldwide . Solid results on the operating front and big spinoff-related news have investors in a particularly good mood, but are the good vibes warranted?

RevPAR starAs my Foolish colleague Travis Hoium noted last month, Hilton's hotel business is humming right along. In Q4, revenue per available room increased 3.7% on a currency-neutral basis, driven largely by strong gains in managed and franchised rooms. Adjusted EBITDA margins, meanwhile, crept up 23 basis points to 41.4%. The combo of higher RevPAR growth and increasing margins is always a positive sign. Looking ahead, management sees 2016 RevPAR growth of 3%-5%, with adjusted EBITDA of $3 billion-$3.1 billion. For reference, Marriott expects current-quarter RevPAR growth of 2%-4%.

If that weren't bullish enough, the company's balance sheet is also firming up. A heavy anchor in recent years has been Hilton's stretched balance sheet, but in 2015, management reduced its long-term debt by $1 billion. In 2016, the company expects cash available for further debt reduction/capital return of $800 million to $1 billion.

Source: Hilton.

Catalyst is comingWhile it isn't too difficult to find a company firing on all operating cylinders, it's quite another thing to pin one down with juicy catalysts to boot. After announcing its intention to break itself up earlier this year, Hilton also seems to have the potential for value-unlocking sparks to fly.

Following the lead of Marriott and, more recently, MGM Resorts, Hilton plans to spin off the bulk of its real estate business into a publicly traded REIT. Additionally, it will spin off its timeshare business, Hilton Grand Vacations, as a separate publicly traded company. While details are still scant, my Foolish colleague Vincent Shen nicely broke the move down last month in a podcast. The transaction will basically result in three pure-play companies, enabling dedicated management teams to pounce on growth opportunities, as well as capital market and tax efficiencies. Existing Hilton Worldwide shareholders will be given stock in the new entities.

Hilton will disclose more details of the deal in SEC filings, but for now, we do know one thing about spinoffs in general: They're usually good for shareholders. In fact, a Penn State study showed that spinoff stocks and their parent companies had outperformed over the three years following the transaction. And if the performance of timeshare company Marriott Vacations Worldwide is any indicator -- the shares have tripled since being spun off from Marriott in 2011 -- would-be owners of Hilton Grand Vacations are in for an even happier ride.

Reasonably priced roomsGiven all the positives surrounding Hilton, you'd think that the shares would trade at a pretty premium to industry peers. Luckily for us price-conscious Fools, that isn't the case with Hilton -- yet. Even with the recent run-up, Hilton trades at a forward EV/EBITDA multiple of 10.1, right in line with Wyndham and a discount to Marriott at 11.0.

Plenty of competitive risks remain, of course. Marriott will soon displace Hilton as the largest hotel operator in the world once the purchase of Starwood Hotels & Resorts closes later this year. While the deal looks somewhat neutral in the short term, the increased scale should drive revenue synergies for Marriott over the longer term. And any investor in the lodging space should always be cautious (maybe even terrified) of the game-changing threat posed by Airbnb, whose global bookings are expected to spike about 70% this year to a whopping $12 billion.

Still, considering Hilton's improving fundamentals, looming spinoffs, and the fact that it still boasts one of the largest pipelines in the industry's history, I think it's worth taking a chance on the reasonably priced shares.

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Marriott International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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