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.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

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!