Investing in the future of tourism 🏨

Growth stocks 

From flying cars to all things futuristic 😎 things get more interesting as tourism companies gear up to change the experience of consumers, in return creating better value for investors.

The tourism sector took a heavy blow during global restrictions. This hindered earnings of tourism companies during the period. As restrictions eased, the demand for space started to surge. We look into a tourism company that is on the journey to change the experience of tourists while creating value for investors in the long term.

Marriott International -Cl A (MAR)

Booking a getaway? Which location? Well, maybe next to the 🏝 coastal area? Either way, Easter or festive season 🍾! We like the saying, 'treat your money the way you want it to treat you'. For a growth stock in the tourism sector, has the phrase become a reality as Marriott expects to reward consumers who have taken the route to invest and book🤔?

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Marriott is a globally recognized hotel chain. The company operates in more than 10 countries globally, with over 7 900 properties housing more than 1.4 million rooms. The hotel giant recently announced that to continue leading within the industry, it will explore opportunities to introduce tech across its global brands through a high-tech hospitality research and development lab. This innovation hub is anticipated to launch later in 2022. The hub will bolster the group's brands with innovation as the company further expands its hotel portfolio across the globe.

Fundamentals

With a resurgence of traveling as restrictions start to ease globally, the company's total revenue for FY21 was $13.8 billion ($3.34 per share), an improvement from $10.5 billion ($0.82 loss per share) in FY20 - this was still down by about $7 billion from FY19.

Notwithstanding the debt of $8.7 billion ($9.5 billion in FY20) - this was heavily influenced by Covid-related factors. For the fourth quarter of the 2021 financial year (Q4 FY22), Marriott’s earnings were $1.42 per share or $468 million in net income. Revenue per available room (RevPAR) for the period increased by 124% worldwide. This comes after the partial easing of restrictions, which increased demand.

Given the solid organic growth, the company had a gross margin of 20% and a net profit margin of 7% for FY21. No dividends were declared during the year. According to Marriott International CEO Anthony Capuano:

"While we are keeping an eye on the continued impact from Omicron, we look forward to the day when we reach a new normal where the impact from Covid-19 on travel has essentially disappeared. We continue to focus on driving revenues, controlling costs, maximizing cash flow, and improving our credit metrics. Assuming no meaningful setback in the global recovery, we could begin returning cash to shareholders later in 2022."

Positioned as a growth stock, the company outperformed its industry during an unprecedented period. By the end of the year, the company reflected a 77% Return On Equity (R.O.E), which indicates how much profits were made from existing shareholder equity value at $1.4 billion during FY21.

Outlook

Booking a room (share) for your money? 🤔 Despite the stock being overvalued at a price-to-earnings (P/E) ratio of 51x as of writing, the company's annual adjusted earnings (excluding income taxes) continued to grow, whereby it outperformed the stocks' estimated EPS by 80% on average, quarter-on-quarter (Q/Q) during the year. 

From the gross profits of $13.8 billion, income distributable to investors for the year was $1.09 billion, a shift closer to $1.2 billion, the pre-Covid level where the company paid a total dividend of $1.85 per share in 2019.

Using the adjusted earnings of $2.29 and estimated $2.35 by Nasdaq, Marriott’s rolling EPS (total FY22 annual estimate) is $4.64. The company expects to spend at least $600 million on investments that include technology-related activities and more during FY22. Deals in the pipeline for FY21 covered 2 831 properties and around 485 000 rooms.

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Informed decision

Despite the current share price, the company continues to make strides to lead with innovation within the tourism industry. This may position the company to have pricing power.

Adding to the above, as commoditization of technology comes into play, older technology becomes part of the new normal. For investors, this may trigger a hunt for innovation as new competition emerges. Marriott may also continue to divert earnings to research and studies related to innovation within the tourism industry. Notably, analysts raise concerns about stagflation and higher interest rates in the medium to long term; a high yield environment may increase the company’s lending costs.

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Sources – EasyResearch, Marriott International -Cl A, Nasdaq, The Business Journals

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