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Marriott International’s Valuation: What Is Priced In?

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Current valuation

Marriott (MAR) currently trades at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 15.6x. Marriott’s valuation is significantly higher than its average valuation of 13.9x posted in January 2008.

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Peer comparisons

Marriott’s valuation is also the highest among its peers. Hilton (HLT) follows with a valuation of 14.7x, followed by InterContinental Hotel Group (IHG) with a valuation of 13.2x. Hyatt (H) is trading at 11.1x, and Wyndham (WYN) is trading at 9.3x.

The market is expecting Marriott’s EBITDA to grow 40.0% in 2017. Keep in mind that most of this growth is inorganic, as it is related to the Starwood acquisition. Its organic EBITDA growth could range from 3.0%–6.0%. Rival Hilton’s EBITDA is expected to fall 36.1%.

Hyatt’s EBITDA is expected to grow 4.0% in 2017, and InterContinental’s EBITDA is expected to grow 7.0% in 2017. Wyndham’s EBITDA is expected to grow 4.0% in 2017.

Our analysis

Investors should note that valuation multiples are dependent on people’s willingness to pay and any perceived risk. In a stable economy, investors see these segments as less risky. A change in the economic environment could result in hotel stocks being discounted more than their peers, which could affect the revenues and profitability of these segments more than hotels.

Global and US economic growth is an important factor affecting the hotel industry, as economic prosperity is the primary driving factor for travel.

Investors should also keep an eye on Marriott’s increasing leverage, which could increase the stock’s volatility.

Investors can gain exposure to Marriott by investing in the First Trust NASDAQ-100 Ex-Technology Sector Index ETF (QQXT), which holds 1.5% of its portfolio in the company.

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