Catch the "Wynd" of Increasing Travel
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With the average daily rate of hotel rooms increasing by about 5% so far this year, hoteliers are gearing up for profit surges. I expect that to last for at least the next several years as international travel ramps up.
Wyndham expands in developing world
Wyndham Worldwide (NYSE: WYN) is looking to expand in the developing world, and that is a strategy many of the top companies are taking. The opening of a Peruvian addition to the 7,410 hotel fleet offered by the company is the latest addition. Investing in Wyndham will allow you to catch the wave of developing world progress, and that economy will surge in the next several years, so get in now.
With the company planning to introduce properties in Nicaragua and Columbia in 2014, now could be your chance to purchase this stock before profits really start to come in and investors catch on to this growth. Expect analyst EPS estimates to increase as the firm solidifies expansion plans.
Currently, analysts expect EPS to rise this year by 14.5% and another 12% next year. Revenue looks set to increase by 9.7% this year and 5.9% next year. I expect revenue gains to be more substantial next year, due to Latin American expansion, but profits will be temporarily offset by startup costs.
Marriott takes advantage of low property prices in Europe
Marriott International (NYSE: MAR) won't likely be able to continue its high growth rate, which has been in the double digits for the last three quarters. Instead, the company will likely suffer from the continued weak European economy. With so few jobs in Europe (see chart below), there won't be many travelers within the continent.
However, the suffering European economy won't last forever, and Marriott is taking this opportunity of low property prices to expand there. In Paris alone, the firm now has 12 properties. This expansion is sure to pay off once the European economy turns around.
For now, the firm is taking advantage of increased travel throughout the world by offering customers airline miles or hotel points on each dollar spent with the company. Facilitating the ease of travel in a society increasingly taking to the skies will set the company up for profits long into the future. And as the global economy continues to be a priority for firms, expect increasing business trips.
Analysts also believe the company is in for growth. This year 34 analysts covering the stock collectively expect a 17% increase in EPS, followed by another 17% increase next year. These targets are in line with mine.
Starwood likely to suffer from franchise focus
Starwood Hotels & Resorts Worldwide (NYSE: HOT) is not as attractive as the other two hotels in this analysis. While the company is expanding worldwide, many of its hotels are franchised, and there is uncertainty about the duration those locations will remain open. Furthermore, many of its properties are timeshares, which are cyclical.
The company has said it is interested in growing its franchised positions, but this creates too much uncertainty. While it could increase growth with minimal startup costs, I am wary about owning a company that isn't in full control of its operations. The firm has sold over 100 hotels to franchisees since 2000.
Analysts are also uncertain about the company. Morningstar said the firm's franchised businesses and timeshares give it a "very high" uncertainty rating. The company is expected to increase EPS by 10% this year and 3% next year. That's well below the expected boom other companies in the industry are expected to experience.
This one is the best
As an investor who is very bullish on the developing world, I give Wyndham a Buy rating. Its continued progress, and assertion that it will increase exposure to Latin America, allows it to gain growth that has likely already peaked in the developed world. Marriott is too exposed to Europe for me to invest in the company now, but any sign of a European recovery will have me reevaluating this stock. I give it a hold rating. Starwood is growing, but where Wyndham is putting up bricks and mortar, Starwood is using play dough. That's what happens when you grow a company by franchising and using timeshares. This stock is a sell.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!