Marriott International (MAR) currently trades at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 15.8x. Its valuation is significantly higher than its average valuation of 13.9x since January 2008.
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Marriott’s peer Hilton Worldwide Holdings (HLT) is trading at 15.3x. Hyatt Hotels (H) is trading at 10.5x, Wyndham Worldide (WYN) is trading at 8.4x, and InterContinental Hotels Group (IHG) is trading at 13.5x.
The market is expecting Marriott’s EBITDA to rise 21.0% in 2016 and then rise to 44.0% in 2017. Keep in mind that most of this growth is inorganic, related to the Starwood acquisition. Hilton’s EBITDA is expected to rise at a much slower rate of 4.0% in 2016 and then fall to a 3.0% growth in 2017.
Hyatt’s EBITDA is expected to rise 9.0% in 2016 and 4.0% in 2017. InterContinental’s EBITDA is expected to rise 1.0% in 2016 and 7.0% in 2017. Wyndham’s EBITDA is expected to rise 7.0% in 2016 and 4.0% in 2017.
Currently, the lodging industry has a lot of things going against it, including slow GDP growth. That means less corporate travel, which is bad news for hotels, especially big ones such as Marriott. Increased geopolitical and terrorist concerns, the strengthening US dollar, and increasing competition are other headwinds.
However, with travel demand around the world increasing, long-term growth for Marriott seems to have potential. This demand and Marriott’s ability to capitalize on it will be a major valuation driver in the long term. Short-term multiples will be impacted by merger-related news.
You should also keep an eye on Marriott’s increasing leverage, since increasing leverage will make the stock more volatile.
You can get exposure to the hotel sector by investing in the First Trust Consumer Discretionary AlphaDEX ETF (FXD), which invests approximately 14.8% in the hotel, restaurants, and leisure sector. It holds 0.58% in Wyndham Worldwide (WYN), 0.87% in Hyatt Hotels (H), 0.90% in Hilton Worldwide Holdings (HLT), and 1.2% in Marriott International (MAR).