The approval of the Pfizer and Moderna vaccines in December 2020 pushed the broader markets higher in hopes of an early macroeconomic rebound. Interestingly, the Dow Jones US Hotels Index, which includes leading hotel stocks like Hyatt, Marriott, Choice Hotels, Vail, etc., has completely returned to pre-crisis levels. Marriott stock (NASDAQ: MAR) posted strong sector performance and remains just 12% below pre-crisis levels. However, shares of its counterpart Hyatt Hotels (NYSE: H) are still 20% lower than the February 2020 highs. Does that make Hyatt a good choice? By comparing historical trends in revenues, margins and the valuation multiple, Trefis believes that Hyatt stock has room for increased growth, despite the difficult environment of the past 12 months. We compare key financial metrics in an interactive dashboard analysis, Hyatt Hotels v Marriott International.
1. Income growth
Hyatt’s growth has been stronger than Marriott’s over the past two years, with Hyatt’s revenue increasing 7% from $ 4.6 billion in 2017 to $ 5 billion in 2019, compared with Marriott’s revenue which increased 3% from $ 20.4 billion in 2017 to $ 20.9 billion in 2019.
- Hyatt’s growth has been driven by its franchise business, which has resulted in a 20% expansion of its total room portfolio since 2017.
- On the contrary, Marriott’s room portfolio grew only 10% over the same period.
- The travel and tourism industry came to a screeching halt during the coronavirus crisis, with popular international brands, such as Hyatt and Marriott, reporting single-digit occupancy rates in various geographies in the second quarter of 2020.
- Hyatt has sold its own hotels to expand its management and franchise business in recent years. With the company’s $ 3.4 billion (nearly double Marriott’s) in tangible capital assets on the balance sheet, its room portfolio is poised to grow further as the balance sheet shrinks due to dilution of assets. active.
2. Returns (benefits)
When it comes to returns, Hyatt’s operating margin has been higher than Marriott’s in recent years.
- As part of its asset reduction strategy, Hyatt has converted its owned and leased hotels to the managed and franchised hotel category to limit risk and focus on expansion. Thus, the gains reported in the income statement pushed operating margins up.
- Although non-operating profit, such as gains made on the sale of a property, is not a long-term phenomenon, but it indicates a high potential for future returns, as all properties are sold for more than the price. salvage value.
- Considering Hyatt’s growing portfolio of rooms, growing revenue and comparable margin (excluding the impact of non-operating income), we believe Hyatt stock has strong upside potential.
- Additionally, Hyatt shares are currently trading at a P / S multiple of 2.5 – well below Marriott’s current P / S multiple of 3.1.
Marriott appears to be the riskier of the two companies from a financial leverage perspective.
- In 2019, Hyatt and Marriott reported $ 5 billion and $ 20 billion in total revenue, respectively.
- Interestingly, long-term debt on Marriot’s balance sheet stood at $ 10 billion, compared to just $ 1.6 billion for Hyatt, indicating significantly higher credit risk for Marriott.
- Additionally, Marriot incurred $ 394 million in interest payments and reported $ 1,685 million in operating cash flow in 2019. As a result, the company spent nearly a quarter of its free cash flow in interest, which limits future growth opportunities.
- In 2019, Hyatt incurred $ 75 million in interest and reported $ 396 million in operating cash flow.
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