Marriott International Inc (MAR, Financial) registered a daily gain of 1.32%, and a 3-month gain of 5.03%. It reported an Earnings Per Share (EPS) of 8.87. But is the stock modestly undervalued? This article aims to answer that question by conducting a thorough valuation analysis. Read on to gain a deeper understanding of Marriott International's financial position and potential.
Company Overview
Marriott International Inc (MAR, Financial) operates over 1.5 million rooms across approximately 30 brands, including Marriott, Courtyard, and Sheraton. Its business model is heavily focused on managed and franchised rooms, which represent 99% of total rooms as of June 30, 2023. The vast majority of Marriott International's revenue and profitability stem from managed, franchise, and incentive fees. With a current stock price of $192.91 per share and a market cap of $57.50 billion, the company's valuation is a critical factor to explore.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It's derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides a snapshot of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Marriott International (MAR, Financial) stock is modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. Marriott International has a cash-to-debt ratio of 0.05, which is lower than 88.12% of 808 companies in the Travel & Leisure industry. This suggests that the financial strength of Marriott International is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Marriott International has been profitable 9 out of the past 10 years. The company had a revenue of $22.90 billion and Earnings Per Share (EPS) of $8.87 over the past twelve months. Its operating margin is 17.63%, which ranks better than 76.91% of 810 companies in the Travel & Leisure industry. This indicates fair profitability.
Growth is one of the most important factors in the valuation of a company. Marriott International's 3-year average revenue growth rate is better than 56.41% of 757 companies in the Travel & Leisure industry. Its 3-year average EBITDA growth rate is 17.8%, which ranks better than 67.61% of 599 companies in the Travel & Leisure industry. This indicates fair growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Marriott International's ROIC was 12.46, while its WACC came in at 11.64.
Conclusion
In summary, the stock of Marriott International (MAR, Financial) is believed to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 67.61% of 599 companies in the Travel & Leisure industry. To learn more about Marriott International stock, you can check out its 30-Year Financials here.
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