Mad Money

Get a room in this IPO: Cramer

Get a piece of the Hilton IPO: Cramer

(Click for video linked to a searchable transcript of this Mad Money segment)

"There's an enormous deal coming next week and I think you should try to get a piece of it," said Jim Cramer.

Hilton is expected to IPO on Thursday and Cramer thinks the deal presents significant opportunity. Here's why:

"First and foremost, the IPO market has been on fire this year," Cramer said.

There have been 209 IPOs in 2013, and the average deal has generated a 29.9% return according to IPO fund manager Renaissance Capital.

Also, the "Mad Money' host said with Blackstone spinning off the company, a very powerful firm has a vested interest in seeing the IPO do well.

" owns a ton of other companies that it would like to take public in successful IPOs," Cramer said. "Therefore, they have every incentive to make sure something as high profile as this Hilton deal works out well for everyone, and I bet they're telling the underwriters to make sure of it."

Traders on the floor of the New York Stock Exchange.
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Of course Cramer realizes both of those reasons are a little inside Wall Street and he never advocates buying a stock simply to game the Street.

Cramer is a dyed-in-the-wool fundamental investor and in the case of Hilton, he believes fundamentals are quite strong.

"Hilton is a high-quality company in an industry that's currently on fire, with demand outstripping supply," he said.

As the economy continues to improve, Cramer believes Hilton is among the best positioned to profit, in part because the company is so big.

"Hilton is the world's largest hotel chain, with over four thousand hotels in 90 countries, under a number of brands, not just Hilton but also Waldorf Astoria, Conrad, DoubleTree, Embassy Suites, Hilton Garden Inn, Hampton, and Homewood Suites."

Also Cramer likes Hilton's plans to expand overseas.

"Hilton understands that international is the future, as 80% of their rooms under construction are located overseas," Cramer said.

All told, Cramer sees plenty of bullish tailwinds that should drive shares higher.

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Now make no mistake - as impressive as those fundamentals may be, Cramer isn't saying buy at any price. Not at all. Even the best run companies with strong fundamental tailwinds can quickly become expensive as the euphoria of an IPO drives shares higher and higher.

Therefore, Cramer says you'll have to exercise some restraint.

Although shares are expected to price between $18 and $21, "I don't want you paying a penny more than $26," Cramer added.

Here's why:

"When you're dealing with companies like Hilton, that have lots of debt of lots of physical assets the best way to value them is using what's known as the enterprise multiple," Cramer explained.

That's determined by taking enterprise value, (or the market cap plus all of the debt on the balance sheet) and dividing it by earnings before interest, taxes, depreciation and amortization.

At $26, Hilton would have an enterprise multiple of 18, putting it at a 30% premium to Hyatt and a 38% premium to Marriott.

"Now, I believe Hilton deserves to trade at a premium to these two, it's a superior company with better growth, but once that premium gets too high, the stock becomes too expensive and I'd rather just fall back on Cramer-fave best of breed lodging play Starwood, with its host of high-end hotels"

Call Cramer: 1-800-743-CNBC

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