In this article, let's take a look at Marriott International, Inc. (MAR, Financial), a $21.79 billion market cap company, which operates more than 3,500 hotels and 600,000 rooms in more than 50 countries.
International Presence
The businesses include 3,916 properties with 675,623 rooms as of year-end 2013. This compared with 3,801 properties with 660,394 rooms or suites the previous year. Of the 3,916 properties, approximately 83 per cent are located in the U.S.
North American hotels generate more than 80% of hotel revenues. This means that it is highly exposed to an economic downturn in North America. On the other hand, the international presence is distributed as of year-end 2013 as follows: 227 properties (41,915 rooms or suites) in continental Europe, 169 (35,732) in the Americas ex-U.S., 150 (48,411) in Asia, 44 (13,095) in the Middle East or Africa, 66 (12,645) in the British Isles and 5 (1,527) in Australia.
Expansion
A few days ago, it was announced that Marriott has signed a definitive agreements to acquire the Delta Hotels and Resorts brand and management and franchise business from Delta Hotels Limited Partnership, a subsidiary of British Columbia Investment Management Corporation (bcIMC) for approximately $135 million. British Columbia owns 13 Delta hotels and will sign new 30-yr management agreements with Marriott for these properties; other 25 Delta hotels are owned by third parties. Marriott sees purchase price ~10x annualized Ebitda and the deal is expected to close in the second quarter. The president and chief executive officer of Marriott said, “Delta has an impressive portfolio of hotels that are among the most preferred in Canada."
Revenues, Margins and Profitability
Looking at profitability, revenue grew by 9.49% and led earnings per share increased in the most recent quarter compared to the same quarter a year ago ($0.65 vs $0.52). During the past fiscal year, the company increased its bottom line. It earned $2.01 versus $1.72 in the prior year. This year, Wall Street expects an improvement in earnings ($2.57 versus $2.01)
| Ticker | Name | Last Price | Revenues - 1 Yr Gr | EPS - 1 Yr Gr | P/E | ROE | Div. Yield |
| Average | Average | 42,2 | 3,44 | 79,77576361 | 33 | 10,1 | 2,27352 |
| MAR | MARRIOTT INTERNATIONAL -CL A | 76,9 | 8,21 | 15,81920904 | 32 | #N/A | 0,96229 |
| HOT | STARWOOD HOTELS & RESORTS | 72,62 | -3,26 | 21,31147541 | 24 | 18,6 | 5,09501 |
| CHH | CHOICE HOTELS INTL INC | 58,1 | 4,74 | -7,692307692 | 29 | #N/A | 1,27367 |
| WYN | WYNDHAM WORLDWIDE CORP | 84,84 | 10,48 | 16,07142857 | 20 | 34,7 | 1,57944 |
| BEL | BELMOND LTD-CLASS A | 10,63 | 8,92 | -150 | #N/A | -2 | 0 |
| RHP | RYMAN HOSPITALITY PROPERTIES | 55,7 | -3,25 | #N/A N/A | 34 | 13,4 | 3,85996 |
| H | HYATT HOTELS CORP - CL A | 57,1 | 5,95 | 145,2830189 | 50 | 4,12 | 0 |
Finally, let´s see a measure defined by Joel Greenblatt (Trades, Portfolio): the Return on Capital, which he analyzed it differently in his book “The Little Book That Still Beats the Market (Little Books. Big Profits)."Â He defined Return on Capital as EBIT divided by the total of net fixed assets and net working capital.
The formula is: Return on Capital: EBIT/(Net Working Capital + Net PPE – Excess Cash)
So, let´s compare the ROC which is one of the most important measures of the efficiency of a business and should be an important tool for investors.
| Ticker | Company | ROC (%) |
| MAR | Marriott | 69.26 |
| H | Hyatt Hotels Corp | 6.58 |
| WYN | Wyndham Worldwide Corp | 58.12 |
| DRII | Diamond Resorts International Inc | 30.79 |
| Â | Industry Median | 12.30 |
The ROC is higher than 93% of the 1000 companies in the industry, including Hyatt Hotels (H, Financial), Wyndham Worldwide (WYN, Financial) and Diamond Resorts (DRII, Financial). During the past 13 years, During the past 13 years, Marriott International Inc's highest Return on Capital (Joel Greenblatt (Trades, Portfolio)) was 69.45%. The lowest was -7.28% and the median was 32.69%.
It is very important to understand this metric before investing and it is important to look at the trend in ROC over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 32.7x, trading at a discount compared to an average of 33.4x for the industry. To use another metric, its price-to-sales ratio of 1.72x is below the industry average of 1.80x.
As we can see in the next chart, the stock price has an upward trend in the five-year period.
Final Comment
The hotel industry is benefiting from higher demand; and we also believe Marriot is well positioned to achieve interesting growth in the next years due to international presence and new expansion plans.
Hedge fund gurus like Paul Tudor Jones (Trades, Portfolio), Ken Heebner (Trades, Portfolio), Arnold Schneider (Trades, Portfolio) and Tom Gayner (Trades, Portfolio) added this stock to their portfolios in the third quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned
