If you want to invest in a familiar name that needs very little introduction, you can consider Marriott International. It’s poised to go on a great run as the hotel and lodging industry is very well positioned to take advantage of distinct post covid dynamics and the Marriott has a valuation that makes it the right stock to maximize this opportunity.  

Marriott International Inc is an operator, franchisor, and licensor of hotels as well as residential, and timeshare properties. Its business segments are categorized by geography either generating revenue in the U.S and Canada or internationally. It has a range of brands including Bulgari, The Ritz-Carlton, W Hotels, Sheraton, Westin, Courtyard, and Residence Inn.

Now let’s discuss why you should consider purchasing its shares. Hotels obviously took a big hit during the pandemic, a period where most stocks did – but the recovery has been impressive. The two metrics most hotel analysts love are occupancy and booking rates. Industry-wide, despite the emergence of Omicron, average daily booking rates in December 2021 were at their highest levels since October 2018 in the U.S. Occupancy levels were also not that far off of their pre covid peaks during the same period (via hotelmanagement.net). Much of this can be attributed to pent-up travel demand and bigger vacation wallets as a result of savings in 2020.

Looking forward, another key factor which makes investing in the hotel space very appealing is the structural changes. One of these changes is the utilization of direct booking and artificial intelligence to price rooms and interact with clients. We all had to go through the hassle of rebooking a reservation during the pandemic. During the Covid period, travelers often found themselves communicating directly with hotels, and not the online travel agencies with which they booked their reservations. This has led hotels to now foster a different type of relationship with their customers; a relationship that promotes distribution via direct bookings. This adds up to huge savings for hotels that pay anything from 10%-30% for commissions to online travel agencies that act primarily as middlemen.

Covid has also altered the workforce, with the industry shredding a noticeable chunk of its people. As bookings revenues now begin to normalize again, hotels are positioned to use artificial intelligence in areas such as customer support, mobile bookings, and even concierge services. Long-term, these changes will birth lower costs and add extreme value to customers. Imagine having a streamlined process powered by algorithms to assist you with your booking and rebooking needs. Wouldn’t that be nice! Also, with the savings from agencies, hotels now have extra spend which they are using to modernize their rooms.

If you stack up the Marriott versus its entire industry, or more interestingly, its closest competitors, the value proposition becomes even more apparent. Marriott’s most talked about rival is Hilton Worldwide Holdings. Hilton is already trading 31% above its pre-covid high, whereas the Marriott is only trading at an 11% premium to its pre-covid high. Additionally, Hilton’s stock trades as 98x its earnings, whereas Marriott only trades at 50 times its EPS. This implies that Marriott has great valuation optics compared to its competitors. More explicitly, Marriott has historically earned twice as much per $ of share price compared to Hilton.

Now, all financial investments involve sort form of risk and do not believe anyone who tries to convince you otherwise. There are clearly some risks to investing in travel stocks. If experts are wrong, and Covid-19 does mutate again into something which causes more shutdowns, travel and lodging will indeed be affected. There is a strong correlation between global macro conditions and travel stocks. If people have less money they tend to spend less on travel and leisure. Hence there is also some recession risk. However, long term these risks become far less daunting as we have already seen huge steps towards most “developed” countries, where Marriott typically has its hotel stock, fully re-opening. Furthermore, 2022 thus far has been a weak year for US stocks but Marriott has still managed to outperform the broader market. Proving its resiliency in a market downturn.

At the time of writing, Marriott was trading at $169.95 USD and has historically paid a dividend yield north of 1%. Given the factors mentioned above, this stock can easily go to $200 in the next 12 months. However, it would be ideal if held over a 2–5-year period. That said, we have to place another risk reminder: allocating 100% of your risk or dollars to any individual stock is never advisable. 

Note: The writer of this report does not have any ownership interest in Marriott International at the time of publication.

Some Sources:

• “The Long Term Perspective on Markets.” Macrotrends, http://www.macrotrends.net/.
• 2022, Max Starkov21 March, et al. “Hospitality Net.” Hospitality Net, https://www.hospitalitynet.org/
• “Hotel Management Homepage: Hotel Management.” Hotel Management Homepage | Hotel Management, https://www.hotelmanagement.net/
• “Mar Interactive Stock Chart | Marriott International, Inc.. Stock.” Yahoo! Finance, Yahoo!, https://finance.yahoo.com/chart/LIVE/
• “Breaking International News & Views.” Reuters, Thomson Reuters, https://www.reuters.com/