Marriott vs. Hilton: Which Hotel Stock is a Better Buy?

Marriott International (MAR) and Hilton Worldwide Holdings Inc. (HLT) are two of the world's leading companies that operate, franchise, and license hotels, resorts, and timeshare properties worldwide. MAR Includes brand names such as JW Marriott, The Ritz-Carlton, Westin, Fairfield by Marriott, and Moxy. It operates through three business segments — North American Full-Service, North American Limited-Service, and International.

HLT operates primarily through two segments — management and franchise, and ownership. It includes Hilton Hotels & Resorts, Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, and Canopy by Hilton brand, to name a few.

Travel and hotel occupancy skidded to a near-halt for much of this year due to the coronavirus pandemic and its attendant lockdown requirements. However, with an  ongoing vaccination drive  in many countries, MAR and HLT are expected to gain significantly as the economy gradually recovers and travelling restrictions ease further.

While MAR has returned 87.6% over the past five years, HLT has gained 65.1%. In terms of their past nine months’ performance, MAR is a clear winner with 63.6% returns versus HLT’s 56.1%. But which of these two stocks is a better pick now? Let us find out.

Latest Movements

On December 23, MAR announced its expansion in Japan with the debut of six of its hotel brands — AC Hotels by Marriott, Aloft Hotels, EDITION, JW Marriott, Fairfield by Marriott, and Ritz-Carlton Reserve. With these additions, the company will end 2020 with a total of 63 open properties in Japan. MAR also expanded its brand portfolio in Australia with the opening of JW Marriott Gold Coast Resort & Spa this month.

As part of its ongoing ‘Connect with Confidence’ program, the company announced on December 17 that it has identified certain health protocol options, including COVID-19 testing, which professionals may select for group meetings at certain company hotels in the United States beginning in January. MAR’s Gaylord Hotels are expected to be the company’s first brand to offer the new health protocols.

On December 15, MAR announced that it has signed an agreement with Grupo Hoteles Panamericano to bring the iconic Sheraton Hotels brand to Bariloche, Argentina. The hotel, which is expected to feature 161 rooms, is slated to debut in January 2022 and will mark  the company’s first international property in Patagonia.

HLT announced on December 15, that it has organically reached a milestone of 1 million rooms. The three hotels — Hilton Garden Inn Umhlanga Arch in South Africa, Tru by Hilton Savannah Airport, and Hilton Garden Inn Guizhou Maotai Town in China, have especially helped the company cross this significant threshold. The company also reached its 300-Hotel milestone in the China market with the opening of Waldorf Astoria Xiamen.

Earlier this month, HLT announced that it has extended its management license agreement with Jin Jiang International to open more than 600 hotels by 2034. On October 29, the company announced several new program adjustments slated for 2021 for its more than 108 million Hilton Honors members and guests around the world. The adjustments include extending points expiration so that no points will expire until December 31, 2021.

Recent Financial Results

MAR’s revenue has surged 54% sequentially to $2.3 billion for the third quarter ended September 30, 2020, driven primarily by the rapid recovery of the Chinese economy.

The occupancy rate in the Greater China region increased to 61.4% in the third quarter, compared to 35.5% in the second quarter. Globally, 94% of the company’s hotels are now open. MAR reported operating income and net income of $252 million and $100 million, respectively, as compared  to the losses it incurred in the second quarter. Its EPS of $0.06 surpassed the consensus estimate by 175%.

HLT’s total revenues for the third quarter ended September 30, 2020 climbed 65.4% sequentially to $933 million. The occupancy rate in the United States region increased to 44.3% in the third quarter, compared to 24.4% in the second quarter. In the Asia Pacific region, its occupancy rate increased to 53.1% in the third quarter, as compared to the 28.8% in the second quarter, and 97% of the company’s hotels were open as of November 2. EPS of $0.06 surpassed the EPS estimate by 400%.

Expected Financial Performance

The market expects MAR’s revenue and EPS to increase 31.7%, and 1213.6%, respectively, next year. In comparison,  the market expects HLT’s revenue and EPS to increase 53.4%, and 881%, respectively, next year.

Profitability

MAR’s trailing-12-month revenue is 1.38 times  HLT’s. Moreover, MAR is more profitable with a gross margin of 71.2% versus HLT’s 63.5%.

Also, MAR’s leverage free cash flow margin of 5.5% compares favorably with HLT’s negative values.

Thus, MAR is the more profitable stock here.

Valuation

In terms of forward P/E, HLT is currently trading at 392.39x, which is much more expensive than MAR. Though HLT is slightly less expensive in terms of trailing-12-month P/S (13.81x versus MAR’s 13.98x), its trailing-12-month EV/S of 17.62x is 1.4% higher than MAR’s 17.37x.

In terms of trailing-12-month price/cash flow, HLT’s 28.43x is 44.7% higher than MAR’s 19.65x.

So, MAR is the more affordable stock here.

POWR Ratings

Both MAR and HLT are rated “Buy” in our proprietary POWR Ratings system. Here are how the four components of overall POWR Rating are graded for MAR and HLT:

MAR has a “B” for Trade Grade, and a “C” for Buy & Hold Grade, Peer Grade, and Industry Rank. It is currently ranked #4 of 15 stocks in the Travel - Hotels/Resorts industry.

HLT holds an “A” for Trade Grade, a “B” for Buy & Hold Grade, and Peer Grade, and a “C” for Industry Rank. It is currently ranked #5 in the same industry.

The Winner

We believe both MAR and HLT are good investment bets considering their market dominance and continued expansion. However, MAR appears to be a better buy as it is a more affordable and profitable stock to play the industry’s recovery.

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MAR shares were trading at $130.39 per share on Wednesday morning, up $1.39 (+1.08%). Year-to-date, MAR has declined -13.55%, versus a 17.92% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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