The approval of Pfizer and Moderna’s vaccines in December 2020 has pushed broader markets higher on hopes of an early macroeconomic rebound. Interestingly, the Dow Jones U.S. Hotels Index, comprising prominent hotel stocks including Hyatt, Marriott, Choice Hotels, Vail, etc., has completely recovered to pre-crisis levels. Marriott stock (NASDAQ: MAR) has been a strong sector performer and remains only 12% lower than the pre-crisis levels. However, the shares of its peer Hyatt Hotels (NYSE: H) are still 20% lower than the February 2020 highs. Does that make Hyatt a good pick? Comparing the historical trends in revenues, margins, and valuation multiple, Trefis believes that Hyatt stock has room for more growth, despite the difficult environment over the past 12 months. We compare the key financial parameters in an interactive dashboard analysis, Hyatt Hotels vs. Marriott International.
- Revenue Growth
Hyatt’s growth has been stronger than Marriott over the last two years, with Hyatt’s Revenue expanding by 7% from $4.6 billion in 2017 to $5 billion in 2019, versus Marriott’s Revenue which grew by 3% from $20.4 billion in 2017 to $20.9 billion in 2019.
- Hyatt’s growth has been driven by its franchise business, resulting in a 20% expansion of its total room portfolio since 2017.
- On the contrary, Marriott’s room portfolio has grown by just 10% during the same period.
- Travel and tourism industry came to a grinding halt during the coronavirus crisis with popular international brands including Hyatt and Marriott reporting single-digit occupancy rates across various geographies in Q2-2020.
- Hyatt has been selling its owned hotels to grow its management & franchise business in the past few years. Considering the company’s $3.4 billion (nearly twice of Marriott) of property, plant & equipment on the balance sheet, its room portfolio is poised to grow further as the balance sheet becomes smaller from asset dilution.
- Returns (Profits)
Coming to Returns, Hyatt’s operating margin has been higher than Marriott in recent years.
- As a part of the asset-light strategy, Hyatt has been converting its owned & leased hotels to the managed & franchise category to limit risk and focus on expansion. Thus, the gains reported in the income statement have been pushing operating margins higher.
- While non-operating income, such as gains realized on the sale of a property, is not a long-term phenomenon, but it indicates a strong potential for future returns as all properties are being sold at a price higher than the salvage value.
- Considering Hyatt’s growing room portfolio, expanding top line, and comparable margin (excluding the impact of non-operating income), we believe that Hyatt stock has a strong upside potential.
- Moreover, the shares of Hyatt are currently trading at a P/S multiple of 2.5 – much lower than Marriott’s current P/S multiple of 3.1.
Marriott looks like the riskier of the two companies from the perspective of financial leverage.
- In 2019, Hyatt and Marriott reported $5 billion and $20 billion of total revenues, respectively.
- Interestingly, the long-term debt on Marriot’s balance sheet stood at a staggering $10 billion as compared to just $1.6 billion for Hyatt – indicating a significantly higher credit risk for Marriott.
- Moreover, Marriot incurred $394 million of interest payments and reported $1,685 million of operating cash flow in 2019. Thus, the company spent nearly a quarter of its free cash flow on interest – limiting future growth opportunities.
- In 2019, Hyatt incurred $75 million of interest payments and reported $396 million of operating cash flow.
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