MAR or H: Which Hotel Stock is Better Placed at the Moment?
Although most hoteliers are witnessing strong leisure demand and recovery in international inbound travel, a sequential fall in occupancy and RevPAR are roadblocks.
Per STR, the U.S. hotel industry’s occupancy for the week ended Sep 2, 2023, came in at 64.1% compared with 65% for the week ended Aug 26. During this duration, RevPAR for U.S. hotels came in at $94.38 compared with $97.62 in the previous week. Industry experts believe that changes in travel patterns (due to high overseas vacationing) and expense pressure from elevated restaurant, hotel, and flight costs added to the downside.
Nevertheless, companies have improved their market prospects and expedited growth by broadening their focus on franchise business models and customer reach. The initiative strengthens the business delivery engine and provides a platform for ancillary revenue growth opportunities.
Also, hotel owners continue to leverage technology to maximize hotel profitability while driving guest satisfaction. Attributes involving the launch of new reservations, loyalty and property management platforms make it an initiative placed in the right direction. Year to date, the Zacks Hotels and Motels industry has gained 20.6% compared with the S&P 500’s 17.6% growth.
The banking environment in the United States and Europe has been challenging due to rising interest rates. Financing conditions in these regions have been challenging, with some banks waiting for more clarity on capital requirements and potential regulations. Hotel operators are cautious in this regard as further challenges pave the path for the inability to access cash and the threat of new financing arrangements. This could impact the expansion deals falling through the pipeline.
Meanwhile, leading hotel companies — Marriott International, Inc. MAR and Hyatt Hotels Corporation H — are undertaking different initiatives to generate profits. With both companies carrying a Zacks Rank #3 (Hold), let’s analyze and find out which is poised better concerning different parameters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance and Valuation
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Shares of Marriott have gained 34.5% so far this year, while Hyatt has increased 15.6%. Shares of Marriott are benefiting from robust leisure demand and solid global booking trends. Also, substantial revenue per available room growth in international markets added to the positives. Also, increased focus on expansion initiatives, digital innovation and the loyalty program bode well. Going forward, the company anticipates business and group travel demand to strengthen and serve as a catalyst for its portfolio.
The P/E ratio is considered for the evaluation of a stock. Typically, stocks with high P/E are overvalued, while those with low P/E are undervalued. However, this metric disregards the company's growth rate. Hence, an investor is likely to pick stocks that are trading at substantially lower PE multiples. On the basis of the forward 12-month P/E ratio, the industry is currently trading at 19.70 compared with the S&P 500’s 19.21. Marriott has an edge with a lower forward 12-month P/E ratio of 21.56 compared with Hyatt’s figure of 35.16.
Estimated Earnings & Revenues
Arguably, earnings growth is paramount for determining a stock’s potential, as surging profit levels indicate strong prospects (and stock price gains).
For the current year, Marriott’s earnings per share are expected to improve to $8.65 from $6.69 in 2022. Moreover, year-over-year sales growth is expected at 15.2% for the current year. Hyatt’s current-year earnings are likely to increase to $2.52 from a loss of 81 cents, while sales are likely to rise 12% year over year.
Fundamentals
Marriott is consistently trying to expand its presence worldwide and capitalize on the demand for hotels in the international markets. The company plans to expand its global portfolio of luxury and lifestyle brands significantly. At the end of second-quarter 2023, Marriott's development pipeline totaled 3,149 hotels, with approximately 547,000 rooms.
The company emphasizes the strategic licensing agreement with MGM Resorts and creating the MGM Collection with Marriott Bonvoy to drive growth. The deal expands Marriott's footprint in Las Vegas (with the addition of 17 MGM Resorts properties for bookings) and enhances loyalty program benefits for both companies. The company is optimistic concerning the growth strategy and anticipates the deal to boost its room distribution by 2.4% in 2023. Overall, the company expects 2023 net rooms to grow in the range of 6.4-6.7% on a year-over-year basis.
Digital innovation and social media play important roles in hotel bookings and Marriot isn’t far behind in improvising. The company re-imagined its Marriott Mobile app to meet modern travelers' needs. With nearly 186 million members globally, the company’s loyalty program, Marriott Bonvoy, supports its marketing strategies.
Hyatt aims to differentiate its brands from one another by providing distinct travel experiences. The company continues to expand its presence to drive growth. During the second quarter of 2023, 24 new hotels (or 5,927 rooms) joined Hyatt's system. As of Jun 30, 2023, Hyatt had a pipeline of executed management or franchise contracts of approximately 585 hotels (or 119,000 rooms).
The company continues to make significant progress with respect to its $2.0 billion asset disposition commitment. The company completed sale agreements for assets (valued at $721 million) related to its owned and leased portfolio. The properties include Hyatt Regency Greenwich (in Connecticut) and Hyatt Regency Mainz (in Germany). On Aug 3, 2022, the company entered into an agreement with an unrelated third party to acquire Hotel Irvine (for approximately $135 million). As of Aug 3, 2023, the company realized proceeds worth $721 million (from the net disposition of owned assets). The company anticipates fulfilling the $2-billion disposition commitment by 2024-end.
With an increased focus on enhancing the guest experience, the initiatives and a strong customer base are likely to pave the path for solid management fee streams in the upcoming periods.
Our Take
Our comparative analysis shows that Marriott has the edge over Hyatt in terms of share price appreciation and projected EPS growth rate. However, the fundamentals of both companies look solid. Taking all the factors into account, we believe Marriott is slightly better positioned than Hyatt at the moment.
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Marriott International, Inc. (MAR) : Free Stock Analysis Report
Hyatt Hotels Corporation (H) : Free Stock Analysis Report
