Ticker: MAR
Industry: Lodging
Recommendation: Don’t
Buy
Pricing
Closing Price: $33.36
52 Week High: $33.36
52 Week Low: $18.01
Market Data
Market Cap:
Total Assets:
Trading Vol:
$11.97 B
$7.93B
4.34B
Valuation
Est Intrinsic Value: $18.22
EPS: - $.97
Div Yield: .49%
Profitability
ROA:
ROE:
Profit Margin:
Oper Margin:
Gross Margin:
-.22%
-27.44%
-3.17%
-.28%
6.28%
Recommendation
Overall Marriott is a strong company and a leader in the industry
that had strong financial data before the recession. As the economy
improves Marriott’s financial data will likely improve and could be
stronger than before (due to international expansion, stronger branding,
and restructuring their timeshare segment). Their fourth quarter 2009
net income was positive again and it looks like the first quarter of 2010
will be even higher. Marriott has also been successful at reducing their
debt and increasing their free cash flow.
Despite Marriott’s optimistic future there are several reasons now
is not the best time to purchase the stock. Marriott is currently trading at
it’s highest price in the past two years and given the current state of their
financials Marriott is potentially overvalued. Due to their recent
restructuring and losses last year it is too difficult to put a value on the
company at this time. While I think Marriott could be a good buy in the
future as their financials or the stock price decreases, my current
recommendation is not to purchase the stock.
Analyst Name
Christy Pashia
ccph2c@mail.mizzou.edu
1
Company overview
Marriott International is currently the leader in the lodging industry with over 3,400
properties in the United States and 67 other countries. The company develops, operates, and
franchises hotels, timeshares, corporate housing, and residential properties. Marriott currently
operates under 18 brand names including Ritz Carlton and Renaissance hotels.
Extended stay
lodging
5%
Business Segments
synthetic fuel
4%
Select service
lodging
11%
Timeshare
15%
Full service lodging
65%
Competitive Landscape
The lodging industry is highly competitive and branding plays a very important role.
Across the board the lodging industry has seen significant declines in their profits over the past
two years due to the state of the economy. However some of the companies do not have as
significant losses as Marriott (likely do to their limited positions in timeshares). Marriott’s main
competitors are Intercontinental Hotels Group, Hilton Worldwide (private), Accor SA (private),
Hyatt Hotels, and, Starwood Hotels & Resorts Worldwide Inc.
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DIRECT COMPETITOR COMPARISON
MAR
Market Cap:
11.93B
Employees:
137,000
Accor SA
N/A
Hilton
IHG
N/A
4.67B
158,1621 130,0001
N/A
10.91B
10.73B1
7.77B1
1.54B
6.28%
N/A
N/A
50.00%
155.00M
N/A
N/A
472.00M
-0.28%
N/A
N/A
23.60%
-346.00M
864.00M1
N/A
207.00M
EPS (ttm):
-0.971
N/A
N/A
0.722
P/E (ttm):
N/A
N/A
N/A
22.67
PEG (5 yr
expected):
3.44
N/A
N/A
N/A
P/S (ttm):
1.08
N/A
N/A
3.01
Revenue (ttm):
Gross Margin (ttm):
EBITDA (ttm):
Oper Margins (ttm):
Net Income (ttm):
H
HOT
6.91B
9.35B
45,000
145,000
3.33B
4.71B
17.38%
21.82%
318.00M 678.00M
1.80%
8.60%
-42.00M
-1.00M
-0.284
0.406
N/A
123.28
N/A
40.26
2.03
1.95
Industry
1.37B
7.10K
456.96M
40.14%
68.85M
5.41%
N/A
N/A
22.02
3.55
1.09
Strengths
Brand name: Branding is very important in the hotel business and so far Marriott has done a
good job creating a strong brand. Marriott tries to give their customers a quality experience
and their mid to higher end hotels have the Marriott name on them while their lower end
hotels only have the name of the specific hotel. They also have Marriott rewards and offer
strong incentives for customers to stay with them for business or leisure no matter what part of
the world they are in.
Economies of scale: Since Marriott has the largest market cap and so many different hotels
they are able to operate their hotels at a lower cost than many of their competitors. They also
have a much larger backing for expansion and renovation due to their size and past success.
3
International expansion: A larger international presence will allow Marriott to take advantage
of their strong brand name. Expanding outside of US borders also allows Marriott to have more
growth and earnings potential since there are already so many Marriott hotels in the US. The
expansion will allow Marriott to generate new customers and encourage existing customers to
stay at Marriott more often.
Weaknesses/Risks
Lodging and timeshare industry risks: Marriott faces substantial competition and could face
losses due to changes in availability/demand of rooms, price/marketing strategies of
competitors, and desirability of locations.
Operational risks: Marriott is highly susceptible to international and regional conditions and
could suffer from a decrease in earnings due to poor economic conditions or perceived safety
of certain regions. They also run the risk of creating new brands that are unsuccessful in the
future.
Development and Financial Risks: The company is exposed to substantial exchange rate risk
from having such a strong international presence. They also have risk associated with the
constructing new buildings or renovating existing properties due to change in project cost,
completion, and resale risk.
Future
Marriott is currently developing over 600 new hotels and more than one-third of them
are international. A large percent of Marriott’s growth is expected to come from expanding in
Asia, Europe, the Middle-East, and South America. Asia is their fastest growing market with 114
current properties and 55 more being built.
Analysts estimate that Marriott will have a 53% growth rate this year and an 11.5%
annual growth rate for the next five years. Also 96% of analysts believe the company is a hold
or better.
Breakdown of Ratings
Strong Buy
4
Buy
10
Hold
8
Underperform
1
Sell
0
4
Intrinsic value
Since Marriott had a negative net income this year I used a three year average and took
into account the one-time loss in restructuring their timeshares in order to value the company.
As sales improve and the company expands more they have high growth potential over the next
few years. Then I used a more conservative growth estimate and an interest rate of 10%. Using
these parameters the intrinsic value is $18.22 and the company is currently selling for $33.36.
Therefore the company is overvalued by $15.14. However I am not sure how accurate this is
given the companies unusual losses.
Financials
Marriott has the largest market cap in the industry of $11.97 billion. Over the last 6
years they have consistently outperformed the S&P 500 Hotels, Resorts, and Cruise Lines Index
in terms of return on initial investment.
5
The company experienced a net loss of $364 million in 2009. The poor performance is
attributed to a poor economy and losses/impairment charges of Marriott’s timeshare sector.
Since the company suffered from a net loss, EPS was -$.97 last year; however the company
began to turn around in the fourth quarter and had a positive EPS of $.11. The EPS for the first
quarter of 2010 also look optimistic Marriott was able to reduce its debt load by $800 million (a
26% increase in 2009). They also generated $150 million in free cash flow.
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7
8
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Resources
Marriott.com
Marriott 2009 annual report
Wall Street Journal
Yahoo Finance
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