Marriott International, Inc. (NASDAQ:MAR) shares are up more than 54.25% this year and recently decreased -0.16% or -$0.2 to settle at $127.53. Hilton Worldwide Holdings Inc. (NYSE:HLT), on the other hand, is up 39.11% year to date as of 12/04/2017. It currently trades at $77.63 and has returned 1.97% during the past week.
Marriott International, Inc. (NASDAQ:MAR) and Hilton Worldwide Holdings Inc. (NYSE:HLT) are the two most active stocks in the Lodging industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect MAR to grow earnings at a 15.85% annual rate over the next 5 years. Comparatively, HLT is expected to grow at a 22.67% annual rate. All else equal, HLT’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 15.72% for Hilton Worldwide Holdings Inc. (HLT). MAR’s ROI is 7.00% while HLT has a ROI of 7.50%. The interpretation is that HLT’s business generates a higher return on investment than MAR’s.
The value of a stock is simply the present value of its future free cash flows. MAR’s free cash flow (“FCF”) per share for the trailing twelve months was +1.17. Comparatively, HLT’s free cash flow per share was +0.62. On a percent-of-sales basis, MAR’s free cash flow was 2.5% while HLT converted 1.7% of its revenues into cash flow. This means that, for a given level of sales, MAR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. MAR has a current ratio of 0.50 compared to 0.90 for HLT. This means that HLT can more easily cover its most immediate liabilities over the next twelve months. MAR’s debt-to-equity ratio is 1.92 versus a D/E of 4.57 for HLT. HLT is therefore the more solvent of the two companies, and has lower financial risk.
MAR trades at a forward P/E of 26.38, a P/B of 10.52, and a P/S of 2.06, compared to a forward P/E of 33.99, a P/B of 17.29, and a P/S of 2.51 for HLT. MAR is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. MAR is currently priced at a 3.18% to its one-year price target of 123.60. Comparatively, HLT is 0.35% relative to its price target of 77.36. This suggests that HLT is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.40 for MAR and 2.00 for HLT, which implies that analysts are more bullish on the outlook for MAR.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. MAR has a beta of 1.34 and HLT’s beta is 1.31. HLT’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. MAR has a short ratio of 5.60 compared to a short interest of 2.79 for HLT. This implies that the market is currently less bearish on the outlook for HLT.
Hilton Worldwide Holdings Inc. (NYSE:HLT) beats Marriott International, Inc. (NASDAQ:MAR) on a total of 8 of the 14 factors compared between the two stocks. HLT has higher cash flow per share, is more profitable, generates a higher return on investment and higher liquidity. In terms of valuation, MAR is the cheaper of the two stocks on an earnings, book value and sales basis, HLT is more undervalued relative to its price target. Finally, HLT has better sentiment signals based on short interest.