Bethesda, Md.-based Marriott International, Inc. (MAR) operates, franchises, and licenses hotel, residential, and timeshare properties worldwide. The company operates through North American Full-Service; North American Limited-Service; and the Asia Pacific segments. In comparison, Denham, U.K.-based InterContinental Hotels Group PLC (IHG) owns, manages, franchises, and leases hotels in the Americas, Europe, Asia, the Middle East, Africa, and Greater China. The company also operates resorts, restaurants, and spas.
Tourism was one of the hardest-hit sectors last year due to the travel restrictions and social distancing mandates. However, thanks to the rapid rollout of the vaccines worldwide, people are regaining confidence and again engaging in leisure travel.
A stronger than expected summer leisure season this year is a clear indication of the rebounding hospitality industry. Lodging Analytics Research & Consulting (LARC) expects U.S. RevPAR to increase 49.9% in 2021 and at a 16.8% CAGR from 2020 – 2025. MAR and IHG are well-positioned to capitalize on rebounding demand.
MAR’s shares have gained 5.1% in price over the past six months, while IHG has slumped 4.7%. In terms of their past year’s performance, MAR is the winner, with 56.6% gains versus IHG’s 21.3%. Moreover, MAR’s 19.1% gains year-to-date compare with IHG’s 3.8% returns.
But which stock is a better buy now? Let’s find out.
On October 8, IHG announced the coming debut of two new properties under its Voco Hotels brand name in the U.S.—the Voco St. James Hotel New Orleans and the Voco Olympia Hotel at Capitol Lake in Washington state. Also this month, IHG announced the opening of Holiday Inn Paris near CDG Airport, in partnership with the HPVA HOTELS group. This demonstrates the company’s solid expansionary policy.
In September, MAR announced the signing of 22 new hotel agreements in South Asia over the past 18 months. The company also expects to add more than 2,700 rooms to its fast-growing portfolio. “In a highly unpredictable year, these signings are a testament to Marriott International’s resilience and agility in driving strong growth within a hospitality landscape that continues to evolve,” commented Rajeev Menon, President Asia Pacific (excluding Greater China) of MAR.
Recent Financial Results
MAR’s total revenues increased 115% year-over-year to $3.15 billion in its fiscal second quarter, ended June 30. Its operating income stood at $486 million, up 416% from the same period last year. Its net income grew 280% from its year-ago loss to $422 million. The company’s EPS has increased 278% year-over-year to $1.28.
For the six months ended June 30, IHG’s revenue from reportable segments increased 16% year-over-year to $565 million, while its operating profit from reportable segments grew 262% from its year-ago value to $188 million. Its adjusted earnings improved 722.2% from the same period last year to $74 million. The company’s adjusted EPS improved 724% year-over-year.
Past and Expected Financial Performance
MAR’s revenues and EBITDA declined at CAGRs of 23.3% and 22.8%, respectively, over the past three years. Analysts expect MAR’s revenue to increase 26.2% in the current year and 39.6% in the following year. The company’s EPS is expected to grow by 1,477.8% in the current year and 81.7% next year. Moreover, its EPS is expected to grow 238.3% per annum over the next five years.
In comparison, IHG’s revenues and EBITDA have declined at CAGRs of 15.8% and 21.3%, respectively, over the past three years. Analysts expect the company’s revenue to increase 40.8% in the current year and 31.6% in the next year. The company’s EPS is expected to grow 280% in the current year and 113.2% in the following year. Moreover, IHG’s EPS is expected to grow 117.7% per annum over the next five years.
MAR is more profitable, with a gross profit and EBITDA margins of 74.70% and 60.26%, respectively, compared to IHG’s 42.91% and 21.78%.
However, IHG’s ROA and ROTC of 5.47% and 14.16%, respectively, compare with MAR’s 2.74% and 5.59%.
In terms of trailing-12-months Price/Sales, MAR is currently trading at 22.11x, which is 69.5% higher than IHG’s 6.74x. Also, MAR’s 28.15 forward EV/EBITDA ratio is 10.4% higher than IHG’s 25.23.
Thus, IHG is relatively affordable here.
IHG has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In contrast, MAR has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Both stocks have a Growth grade of B, consistent with their stable rise in financials in the latest quarter.
IHG has a B grade for Sentiment, which is consistent with favorable analyst sentiment. The three Wall Street analysts rating the stock have rated it Buy. In contrast, MAR has a C grade for Sentiment. This is justified, because among the seven Wall Street analysts that rated MAR, one rated it Buy, while six rated it Hold.
Of the 20 stocks in the Travel – Hotels/Resorts industry, IHG is ranked #3, while MAR is ranked #7.
With the solid progress on the vaccination front and the subsequent easing of the travel restrictions, people are once again engaging in leisure travel. Therefore, both MAR and IHG should benefit, considering their market reach. However, we think its lower valuation and favorable analyst sentiment make IHG the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Travel – Hotels/Resorts industry here.
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MAR shares were trading at $157.45 per share on Monday afternoon, up $0.36 (+0.23%). Year-to-date, MAR has gained 19.35%, versus a 18.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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