3 Hotels That Could Move Up
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After doing quite well for most of 2012, with strong revPAR (Revenue per available room), lodging stocks have recently started to underperform. Amongst those punching below its weight are stellar names, including Marriott International (NYSE: MAR) , Wyndham Worldwide Corporation (NYSE: WYN), and Intercontinental Hotels Group (NYSE: IHG), all of which have underperformed the Standard & Poor’s 500.
Marriott International, the hospitality major, posted 6% RevPAR in 3Q 2012 which was lower than the consensus estimate of 7.8%. Despite this RevPAR miss, the company was able to beat the consensus EPS estimate of $0.40 by posting $0.44 earnings per share. The company’s performance in 2013 is expected to be good thanks to an increase in Group Bookings, which is up 7% year over year, as well as negotiated corporate rates, which are up 6-7% for 2013.
The company plans to expand the number of properties it owns across the US and internationally. As of now the company is planning on adding approximately 35,000 rooms in 2013 (+11% as compared with +9.8% in 2012), and a total of approximately 105,000 rooms over the next three years; that's approximately a 16% increase from its current room base.
The company is focusing on expanding in the Asia Pacific region, which is in line with their plans of 50% growth in the international segment. The company wants to increase its number of hotels in the region two fold. With a current base of 132 hotels in Asia and with 11 lined up for approvals, it totals to 143 properties. Marriott is planning to grow its hotel count by 265 at the end of 2016, with more than 80,000 rooms in 16 countries. With this, the company is maintaining its strong momentum of new hotels in the pipeline, which will increase its footprint and also result in higher revenue.
Wyndham Worldwide Corporation
Wyndham Worldwide Corporation encompasses approximately 7,380 franchised hotels and vacation ownership resorts, with approximately 633,700 rooms worldwide. Wyndham possesses a very resilient and fairly low capital-intensive set of hospitality businesses that generate meaningful free cash flow ($600 million to $700 million annually).
Vacation Ownership has provided good return for shareholder value, as the company has made great strides in promoting the time-share concept. Vacation Ownership improvements, combined with current positive trends in the lodging space, have resulted in significant improvements in earnings and free cash flow generation.
The company has been an investor-friendly company, with consistent growth in earnings and EPS. The company also has a share repurchasing plan in place and has already bought back 1.1 million shares in 3Q 2012. It is expected to continue with the plan of repurchasing in the range of $150 million-$200 million worth of shares each quarter.
However, there are a couple of reasons why the company stands out.
1. Its current dividend of 1.7% shows an increase of 53% this year, and with regular share buyback activity, there is a good upside potential for the stock.
2. In addition to this, it has a forward P/E of 19.98x, lower than its peer Marriott's 23.25x and with the Industry's P/E of 23.42x.
Inter Continental Hotels Group
InterContinental Hotels Group is a global hotel company that operates seven brands internationally. InterContinental’s development pipeline is among the largest of its peers, and its international footprint provides exposure to high growth markets, such as Asia. The company has seen impressive growth in China over the last few years and is expected to post high-single digit to low double-digit RevPAR growth in China in the current quarter.
The company also owns the iconic Holiday Inn that underwent a brand revamp. This is expected to have a positive impact on the company, as refreshed rooms offer greater potential for growing RevPAR.
The company has also been fairly friendly to investors over time. IHG has paid out over $500 million in dividends since 2008 ,and in addition to this, will return $500 million through a special dividend with a share consolidation and another $500 million through a share buyback.
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