Is It Worth Investing in Marriott? Key 4Q14 and 2014 Results (Part 8 of 10)
EV-to-EBITDA
Since the hotel industry is capital intensive in nature, we’ll value Marriott International (MAR) with the help of enterprise value (or EV) divided by earnings before interest, tax, depreciation, and amortization (or EBITDA).
Relative valuation
The above chart shows the evolution of the one-year forward EV/EBITDA multiple of Hilton Worldwide (HLT), Marriott International (MAR), Starwood Hotels and Resorts Worldwide (HOT), Hyatt Hotels Corporation (H), and Wyndham Worldwide Corporation (WYN).
As of March 5, 2015, Marriott’s one-year forward EV/EBITDA stood at 15.0x, which is higher than all of its peers. ETFs like the Consumer Discretionary Select Sector SPDR Fund (XLY) helps investors gain access to these hotel companies without the risk of a single stock.
2016E EBITDA
Marriott International’s consensus revenue estimates given by Wall Street analysts are expected to increase by 7.6% in 2016, while its consensus EBITDA estimates are expected to increase by 12.0% in 2016.
Considering this EBITDA growth, Marriott is valued at 13.6x based on the 2016E EBITDA. Marriott’s 2016E EBITDA margin is 12.1%.
Key takeaways
Marriott’s EV/EBITDA multiple is higher than all of its peers. This premium is likely due to Marriott’s strong pipeline and earnings growth. Delta’s acquisition earlier this year is expected to price in completely, since it will be accretive in 2016.
As demonstrated by the company’s planned pipeline of rooms, investments, and expansion plans, Marriott’s growth looks promising. Investors should keep in mind that Marriott reported strong operating results with adjusted EBITDA growing 20% year-over-year (or YoY) in the fourth quarter of 2014. Moreover, Marriott has been regularly returning its capital through dividends and share buybacks.
After taking these factors into account, Marriott could be a strong investment for the long term. Marriott’s current valuation is sustainable given its strong performance in 4Q14 and fiscal 2014.
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