Marriott International, Inc. (NASDAQ:MAR) shares are up more than 0.53% this year and recently increased 2.02% or $2.7 to settle at $136.45. Wyndham Worldwide Corporation (NYSE:WYN), on the other hand, is up 1.41% year to date as of 01/02/2018. It currently trades at $117.50 and has returned 3.15% during the past week.
Marriott International, Inc. (NASDAQ:MAR) and Wyndham Worldwide Corporation (NYSE:WYN) are the two most active stocks in the Lodging industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MAR to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, WYN is expected to grow at a 12.94% annual rate. All else equal, MAR’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 21.23% for Wyndham Worldwide Corporation (WYN). MAR’s ROI is 7.00% while WYN has a ROI of 11.50%. The interpretation is that WYN’s business generates a higher return on investment than MAR’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. MAR’s free cash flow (“FCF”) per share for the trailing twelve months was +1.17. Comparatively, WYN’s free cash flow per share was -0.96. On a percent-of-sales basis, MAR’s free cash flow was 2.5% while WYN converted -1.74% 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
Balance sheet risk is one of the biggest factors to consider before investing. MAR has a current ratio of 0.50 compared to 1.00 for WYN. This means that WYN 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 9.46 for WYN. WYN is therefore the more solvent of the two companies, and has lower financial risk.
MAR trades at a forward P/E of 27.82, a P/B of 11.26, and a P/S of 2.23, compared to a forward P/E of 16.94, a P/B of 19.29, and a P/S of 2.09 for WYN. MAR is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. MAR is currently priced at a 5.45% to its one-year price target of 129.40. Comparatively, WYN is 8.35% relative to its price target of 108.44. This suggests that MAR 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 2.40 for WYN, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. MAR has a beta of 1.35 and WYN’s beta is 1.35. WYN’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. MAR has a short ratio of 4.51 compared to a short interest of 5.62 for WYN. This implies that the market is currently less bearish on the outlook for MAR.
Marriott International, Inc. (NASDAQ:MAR) beats Wyndham Worldwide Corporation (NYSE:WYN) on a total of 7 of the 14 factors compared between the two stocks. MAR is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. MAR is more undervalued relative to its price target. Finally, MAR has better sentiment signals based on short interest.