The global hotel industry was hit hard during the COVID-19 pandemic as many businesses have been forced to shut down, leading to a massive drop in worldwide hotel revenues. However, with the global economy reopening amid the lessening of the pandemic, and a robust summer travel season expected, the industry should experience a strong recovery.
According to the Statista report, the global revenue in the hotels segment is expected to grow from $312.3 billion in 2022 to $479.9 billion by 2026, showing a CAGR of 11.34% during the forecast period. Consequently, hospitality businesses should benefit in the long term.
Keeping this in mind, I am going to analyze and compare two hotel stocks, Marriott International, Inc. (MAR) and Hilton Worldwide Holdings Inc. (HLT), to determine which one is currently a better buy.
Founded in 1927, MAR is a hospitality company that operates, franchises, and licenses hotels, residential, and timeshare properties around the world. The company operates across two business segments: U.S. & Canada and International. Based in Virginia, HLT owns, leases, manages, develops, and franchises hotels & resorts. It has about 6,800 properties with 1 million rooms in 122 countries and territories, operating across two segments: Management & Franchise and Ownership.
Year-to-Date (YTD), MAR has fallen about 4%, while shares of HLT lost 15% over the same period.
Recent Developments
On May 16th, Marriott International announced that on June 15th, 2022, it will redeem all $173.38 million of its outstanding 3.250% Series L Notes due September 15th, 2022. It is a positive development as it will lead to lower interest expenses, thus improving the company's bottom line.
Recent Quarterly Performance & Analysts Estimates
On May 4th, Marriott International reported earnings for the first quarter of 2022. The company’s total revenue rose 81% year-over-year to $4.2 billion, missing, however, Wall Street's estimates by $30 million. This growth was primarily driven by a 90% YoY increase in the U.S. & Canada segment revenue to $3.27 billion. Also, the company’s net income stood at $377 million in Q1, compared to a year-ago net loss of $11 million. As a result, MAR disclosed a first-quarter Non-GAAP EPS of $1.25, beating analysts' consensus by $0.33.
It is also important to note that MAR's comparable system wide constant dollar RevPAR grew 99.1% YoY in the U.S. & Canada and 88.5% YoY in international markets. RevPAR is calculated by dividing room sales for comparable properties by room nights available for the period, thus measuring the period-over-period change in room revenues for comparable properties. The company’s first-quarter Adjusted EBITDA has been reported at $759 million, up 156.4% year-over-year.
For the next quarter, analysts project MAR's EPS to come in at $1.50, up 89.49% year-over-year. Moreover, a $4.97 billion average revenue projection for the second quarter of 2022 implies 57.67% year-over-year growth.
Hilton Worldwide Holdings' total revenue for its fiscal first quarter, which ended March 31st, 2022, grew 96.8% year-over-year to $1.72 billion. However, HLT missed the Wall Street consensus revenue projections by $30 million. Its net income was $211 million in Q1 versus a net loss of $109 million in a year-ago quarter. Consequently, the hospitality company reported a Non-GAAP EPS of $0.71, beating Wall Street estimates by $0.05.
Notably, Hilton's system-wide comparable RevPAR advanced 80.5% on a currency-neutral basis compared to the first quarter of 2021. Its Adjusted EBITDA stood at $448 million in 1Q22, representing a 126% increase year-over-year.
Currently, Wall Street anticipates Hilton's earnings to grow by 84.79% YoY in the second quarter of 2022 to $1.03 a share. Also, its top line should increase 55.84% YoY to $2.07 billion in FQ2.
Comparative Valuation
In terms of Forward P/E, HLT is presently trading at 32.17x, which is 21% higher than MAR, whose multiple is currently coming in at 26.62x. However, both companies look overvalued compared to the sector's median of 11.30x.
When it comes to the Forward EV/EBITDA multiple, Hilton's multiple of 19.25x is about 14% higher than Marriott's 16.86x. But both multiples are above the sector’s median of 8.16x.
The Bottom Line
The hotel industry is expected to continue its recovery from the negative impacts of the COVID-19 pandemic. While both hospitality companies should benefit from the recovery, investment in Marriott International looks more attractive at the moment based on its relatively better financials, cheaper valuation, and slightly higher forward growth rates.
MAR shares were trading at $153.99 per share on Tuesday morning, down $3.97 (-2.51%). Year-to-date, MAR has declined -6.64%, versus a -17.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.
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