Why Investors Should Pay Attention to Marriott’s Debt Levels


Aug. 7 2017, Updated 9:09 a.m. ET

Increasing debt

Marriott (MAR) has grown through the inorganic route over the past five to six years. Some of its acquisitions have been made possible through Marriott’s strong free cash flow generation, while others were funded through debt.

Total debt on Marriott’s balance sheet increased from $3.8 billion at the end of 2014 to $4.1 billion at the end of 2015 and $8.2 billion at the end of 4Q16. This sudden doubling of debt resulted from its recent Starwood acquisition. At the end of 1Q17, the debt had declined slightly to $8.1 billion.

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However, increasing EBITDA[1. earnings before interest, tax, depreciation, and amortization] levels have allowed Marriott’s leverage ratios to remain stable. Its net-debt-to-EBITDA ratio was 11.0x at the end of 2014 and increased slightly to 12.0x at the end of 2015. This ratio has remained stable at ~12.0x since 2015. At the end of 1Q17, the ratio was 11.8x.

Peer comparisons

On the leverage front, Hyatt has fared far better than its peers. Wyndham Worldwide (WYN) has the highest leverage ratio among its peers of 19.6x. Hilton Worldwide (HLT) has a leverage ratio of 15.5x, and Marriott (MAR) had a leverage ratio of 11.8x at the end of 1Q17.

Cash flows continue to be strong

Marriott’s (MAR) strong cash flow generation has been a strong point for investors. Marriott generated ~$1.6 billion in cash flow from operations (or CFO) in 2016 and free cash flow of $1.4 billion, which increased the cash on its balance sheet to $858.0 million. In the first quarter, it generated CFO of $526.0 million, almost all of which was translated into free cash flow of $478.0 million.

High leverage and interest costs reduce a company’s ability to cope with unfavorable conditions. As a result, investors should pay close attention to MAR’s increasing leverage.

Investors can gain exposure to Marriott by investing in the PowerShares Dynamic Large Cap Growth Portfolio ETF (PWB), which holds 1.3% of its portfolio in the company.


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