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.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!