Earnings

Dissecting the Numbers for Marriott International, Inc. (MAR) and Park Hotels & Resorts Inc. (PK)

Marriott International, Inc. (NASDAQ:MAR) shares are up more than 3.60% this year and recently increased 1.09% or $1.51 to settle at $140.61. Park Hotels & Resorts Inc. (NYSE:PK), on the other hand, is down -5.39% year to date as of 02/13/2018. It currently trades at $27.20 and has returned -1.63% during the past week.

Marriott International, Inc. (NASDAQ:MAR) and Park Hotels & Resorts Inc. (NYSE:PK) 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.

Growth

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 16.47% annual rate over the next 5 years. Comparatively, PK is expected to grow at a 2.08% annual rate. All else equal, MAR’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 25.61% for Park Hotels & Resorts Inc. (PK). MAR’s ROI is 7.00% while PK has a ROI of 4.90%. The interpretation is that MAR’s business generates a higher return on investment than PK’s.

Cash Flow 




The amount of free cash flow available to investors is ultimately what determines the value of a stock. MAR’s free cash flow (“FCF”) per share for the trailing twelve months was +1.17. Comparatively, PK’s free cash flow per share was +0.25. On a percent-of-sales basis, MAR’s free cash flow was 2.5% while PK converted 1.97% 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

MAR’s debt-to-equity ratio is 1.92 versus a D/E of 0.50 for PK. MAR is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

MAR trades at a forward P/E of 27.16, a P/B of 11.60, and a P/S of 2.24, compared to a forward P/E of 17.39, a P/B of 0.96, and a P/S of 2.07 for PK. MAR is the expensive 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

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 1.41% to its one-year price target of 138.65. Comparatively, PK is -9.69% relative to its price target of 30.12. This suggests that PK 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 2.50 for PK, which implies that analysts are more bullish on the outlook for PK.

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 4.20 compared to a short interest of 2.07 for PK. This implies that the market is currently less bearish on the outlook for PK.

Summary

Park Hotels & Resorts Inc. (NYSE:PK) beats Marriott International, Inc. (NASDAQ:MAR) on a total of 8 of the 14 factors compared between the two stocks. PK is growing fastly and has lower financial risk. In terms of valuation, PK is the cheaper of the two stocks on an earnings, book value and sales basis, PK is more undervalued relative to its price target. Finally, PK has better sentiment signals based on short interest.

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