Are Marriott’s Hotels Cheap or Expensive?

Marriott International, Inc. (NYSE:MAR) spun out its vacation ownership business a little less than a year ago (in November 2011) and the stock is up about 28% so far in 2012. It’s possible not only that those operations were more valuable as a stand-alone business, but also that Marriott’s management has been better able to focus on core operations without having to devote time and effort to vacation ownership. Marriott’s portfolio of hotel brands, which includes Renaissance Hotels, Residence Inn, and Ritz-Carlton in addition to its flagship brand, gives it over 3,700 hotel properties and over 640,000 rooms.

Tom Gayner

Markel Gayner Asset Management, headed by Thomas Gayner, reported a position of 1.4 million shares at the end of June. Markel Gayner has had roughly the same size position for over a year (find more stocks Markel Gayner owns). While billionaire Jeffrey Vinik’s Vinik Asset Management reduced the size of its position, it still owned 1.2 million shares of Marriott International, Inc. (research billionaire Jeffrey Vinik’s favorite stocks). Ascend Capital, which had about $3 billion in assets under management in early 2011 and is managed by Malcolm Fairbairn, increased its position to 1 million shares at the end of the second quarter (see more stock picks from Ascend Capital).

In the quarter ending September 7th, 2012 (the third quarter of Marriott International, Inc.’s fiscal year), revenue was up 5% (after subtracting timeshare related revenue from 2011), which was a slight increase from the revenue growth rate it had done in the first half of the fiscal year. If timeshare operating costs and impairment charges from the third fiscal quarter of last year are also excluded, net income was up from about $109 million to $143 million (this increase does not include the impact on income taxes). Marriott’s growth was driven by North American limited-service hotels (such as Courtyard and Residence Inn) with luxury lodging such as Ritz-Carlton turning in a high growth rate. Given that there have been concerns about macro growth both in the U.S. and globally, it’s a positive sign that the hotel business is doing well. However, Marriott’s forward P/E of 19, which is based on analyst estimates of 19% EPS growth next year, does suggest that the market has priced in quite a bit of future growth. On its own the stock actually looks a bit pricy.

We would compare Marriott to InterContinental Hotels Group PLC (NYSE:IHG), Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT), Wyndham Worldwide Corporation (NYSE:WYN), and Hyatt Hotels Corporation (NYSE:H). InterContinental Hotels, which owns among others the Holiday Inn brand, looks about even with Marriott in terms of recent revenue growth, turning in 3% higher sales in its most recent quarter versus a year ago. The company trades at 18 times forward earnings estimates, a slight discount to Marriott but it also has a somewhat smaller market cap so we’d say the two companies are about fairly priced relative to each other. Wyndham is even cheaper, at a forward P/E of 15 (and a trailing P/E of 21); even though the stock has risen 77% over the last year it turns in low multiples due to solid business performance compared to 2011.

Starwood and Hyatt trade at premiums relative to Marriott, with Hyatt looking particularly expensive at 43 times earnings estimates for 2013. Starwood’s earnings actually declined last quarter compared to the same period in the previous year, and Wall Street analysts think there is more trouble ahead for the company: it trades at a forward P/E of 21 as consensus earnings are lower than what the company has done on a trailing basis. We don’t see any reason to own it over Marriott. Hyatt is getting moderate growth, with revenue up 8% and net income up 5% in its most recent quarter over the second quarter of 2011, but for us that’s not a high enough growth rate to justify its valuation.

Marriott looks a bit expensive but seems about average for its peer group. However, there’s quite a bit of variance among its peers: it looks to us, from a quick look, that Wyndham is particularly cheap and Hyatt is particularly expensive.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!