AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Full disclosure: I love to stay in hotels, nice ones. I had a childhood friend whose father was the general manager of a Hilton and it seemed like he had the most glamorous childhood ever. Ideally, I would be a perpetual traveler mostly living by sugar sand beaches with hot and cold running Mojitos. I’m not the only one who shares this fantasy of hotel living. It has inspired the likes of childhood classic “Eloise” about an irrepressible tot who lives at the Waldorf-Astoria and a latter day Disney show about twin boys growing up in a hotel.
Unfortunately, I can’t stay at all the premiere destinations at the hotel chains I’m writing about and give you the straight skinny; there are just too many chains and hotels. The sector is fairly saturated with Marriott, Hyatt, Starwood, Wyndham Worldwide and even more privately held chains like Hilton and Accor S.A. but four hotel stocks are worth visiting virtually for keys to profits.
The Key to Profits
One of the biggest names, Marriott International (NYSE: MAR), is reporting on October 3. Like other hotel stocks Marriott has been quietly climbing since it was under $15 in 2009 to a 52 week high of $41.87. Still, it touched $50.00 in 2007. Its P/E is a rather towering 64.74, much higher than the industry at 25.51 but the forward P/E is 19.45. It has a 1.30% yield with a 72% payout ratio. Marriott has come a long way since its beginnings as a root beer stand in Washington, DC and Marriott family members are still involved and hold 41 million shares.
Marriott owns 3,718 lodging properties worldwide with luxury names like The Ritz-Carlton, Bulgari Hotels, and 13 other hotel brands as well as vacation ownership properties. Revenues have been declining for the last four quarters with Q1 down some 8%. The company has over $2 billion in debt but has enough free cash flow and earnings to cover both dividend and interest on debt. It acquired Gaylord Hotels in June for $210 million.
Marriott was recently downgraded at J.P. Morgan on valuation having hit their 2012 price target and seeing little upside in the name. The stock also has a large short interest of 8.50%.
A smaller competitor by market cap (7.64 billion), International Hotels Group (NYSE: IHG) has 15 times fewer employees than Marriott but has a 13.45 P/E and a 1.60% yield at a 27% payout ratio. It owns 4,500 properties of well-known hotels like Crowne Plaza, Holiday Inn, Holiday Inn Express, Hotel Indigo (I did stay at one recently and it was very nice), InterContinental Hotels, Candlewood Suites, and Staybridge Suites in 100 countries. The return on assets is 12.05% with a profit margin of 32.24% and operating margin of 31.46%.
The company is planning an aggressive push into Indonesia and advancing throughout Southeast Asia and China, where revenues were up 14% from its ten hotels there. It’s been getting some hedge fund love as well from Navellier Associates, SAC Capital Advisors and D.E. Shaw &Co. The stock goes ex-dividend on October 9.
One thing to note about International Hotels Group is that it is headquartered in the UK and sometimes more difficult to do your due diligence on this name than the others.
It’s not really fair to compare Wyndham Worldwide (NYSE: WYN) against these as a hotel chain as it receives more than 80% of its revenue from vacation exchange and rentals and its vacation ownership division. It is often listed as a direct competitor but would be more of a resort or timeshare name. But it’s worth noting that Wyndham Worldwide has raised the dividend by 53% this year to yield 1.80% and has a 20.57 P/E. Wyndham also has been buying back shares and has doubled from its 52 week low of $26.18. Wyndham reports on October 24.
Hyatt Hotels Corporation (NYSE: H) has no yield and another high P/E of 58.19.The company owns Hyatt, Grand Hyatt, Hyatt Regency, Andaz, Hyatt Place, and Hyatt House, a relatively new urbane residential concept for them. Analysts like Hyatt’s $200 million share buyback. While I wouldn’t mind living at a Hyatt House I wouldn’t necessarily want to own the stock here, not when all these other names have a dividend. Hyatt reports on October 31.
A favorite name would be Starwood Hotels and Resorts Worldwide (NYSE: HOT). I’ve decided their photo of the St. Regis Bali is my new screensaver. I could live there or at the St. Regis Mauritius forever. Starwood is just under Marriott in market cap (11.39 billion) but has more employees and has a P/E of only 19.45. It also has a .90% yield.
Starwood has 1,112 properties under the St. Regis, The Luxury Collection, W, Westin, Le Meridien, Sheraton, Four Points, and Aloft brands. Like International Hotels Group it is expanding in China with four new Aloft hotels.
Starwood is close to 5% off its 52 week high and only 10% off its price target of $63.93. Hotel stocks have been hot, hot, hot and ticker HOT is no exception, up 57.7% over 52 weeks. Like a chocolate on your pillow, it’s comforting to know that 10.28% of shares are held by insiders like CEO Frits Van Paasschen who holds 236,222 shares and 86% by institutions. Starwood reports on October 25.
Of all these names my favorites would have to be Starwood and International Hotels Group. They have the lowest P/Es and still have yield. Another thing they both have in common is expansion into China. Since more foreign travelers than Chinese stay at these upscale hotels, their stocks should not be impacted adversely by the ebbs and flows of the Chinese economy and the Chinese exposure is only a percentage of revenues.
Yes, I love hotels and wish I could have grown up in one but at least I can indulge my fantasy by making money off them. Yes, one day we can toast our hotel profits with Mojitos at the St. Regis Bali or Mauritius. You decide.
leglamp has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.