Executive Summary and Recent News
Marriott International (NYSE:MAR) is a hospitality company that owns nearly 4,000 properties spread across 18 different brands throughout the world. The company was founded by J. Willard and Alice Marriott and has been guided by the Marriott family for the past 80 years.
Marriott was recently in the news for reporting third quarter results. The company reported diluted earnings per share of $0.65, which is a 25% increase over previous year results. Marriott also repurchased 4.5 million shares of company stock during the third quarter. Additionally Marriott reported that due to adding additional rooms in the third quarter, the company now oversees over 700,000 rooms worldwide.
Marriott was also recently in the news for declaring its quarterly cash dividend of $0.20 per share, which results in a yield slightly over 1%.
When analyzing a stock that has piqued my interest, one of the first things to look at is the company's past performance. Although past performance is never a guarantee of how the equity will perform in the future, it can be reasonable criteria to evaluate before purchasing shares. In terms of past performance, Marriott has performed well, outpacing the S&P 500 and its industry competitors over the long term.
Chart Courtesy of Morningstar
In one of my previous articles I wrote on TripAdvisor (NASDAQ:TRIP) I discussed a study the company had conducted regarding travel in 2015. The study showed that many travelers are looking to take additional trips this winter after experiencing a particularly colder than usual winter last year. PriceWaterhouseCooper (also known as PwC) also recently did a study that had similar results. The company expects firms to see higher occupancy levels and another solid year, despite an increase in hotel room inventory.
Another potential catalyst for the company is the announcement of some new openings and developments. The company recently launched its AC Hotel brand in North America, starting with the city of New Orleans. The brand had previously been focusing primarily in Spain, but the hope is that the brand will succeed in North America as well.
Investing in Marriott does not come without a number of various risks. Unfortunately for the company, many of the risks are beyond the control of management. Risks of rising interest rates on debt obligations, economic decline, and an overall decrease in consumer spending could all negatively impact the company. Although fuel prices have been declining recently (which should free up some disposable income and increase travel) there is no guarantee that the economy will continue to improve or that oil prices will remain a bargain.
From a valuation standpoint, Marriott can become a bit worrisome. The company currently trades at a price to earnings ratio of 33, which is drastically higher than the S&P average of about 18.7. Although the industry as a whole tends to trade at a higher multiple, it is often difficult to justify buying stock in a company with such a large multiple. Generally, companies trading at large multiples will need to be justified by a larger than average growth rate. However, in the case of Marriott, the company's PEG ratio (price to earnings in relation to growth) is standing at around 2. This indicates that the company currently trades at a price to earnings ratio nearly double its growth rate, which at least conceptually indicates now, is not the time to buy.
In conclusion, the company has some potential appreciation and growth over the next few years and beyond. Having said that, the stock seems too expensive for a more conservative investor at this point, as the PEG ratio indicates. Investors who are willing to take on some additional risk and are particularly bullish on the hotel industry may consider purchasing Marriott shares, but there are certainly other alternatives out there that may offer better appreciation potential.
This article is for informational purposes only and is not to be construed as investment advice. Contact your investment professional and do your own due diligence before investing.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.