TPC - Check in at Marriott
Few industries have been more disrupted than travel and leisure; however, the worst is over and more people are hitting the road and taking to the skies, asserts Steve Mauzy, editor of Wyatt Research's Personal Wealth Advisor.
I like the reward-to-risk scenario for investors in the hotel industry. I like the reward-to-risk scenario at Marriott International (MAR) the most. It is the largest hotel operator by rooms and revenue in the world, with 1.38 million rooms at the end of 2019. The rooms generated $20.9 billion in revenue for the year.
Marriott manages close to 30 brands, including The Ritz-Carlton hotels, Renaissance Hotels, Courtyard, Fairfield Inn, SpringHill Suites, Residence Inn, and TownePlace Suites.
Interestingly enough, Marriott owns only 1% of the rooms in hotels operating under a Marriott brand. Fifty-eight percent of its hotels operate under a franchise agreement. Another 41% operate under a management agreement.
Marriott earns franchise fees on the properties that operate under the franchise agreement. It earns base management fees incentive from properties that someone else owns that Marriott manages.
This asset-light model offers numerous advantages. It enables Marriott to generate a copious, continual flow of cash with minimal capital investment. Free-cash flows regularly exceeds $1 billion annually.
During the depths of the market sell-off in late March, Marriott shares were off as much as 69% from their $153 high set last year. The shares have recovered with the overall market, but they are still down 30% from that high. Investors remain circumspect about the future of the leisure-and-travel industry.
Pervasive uncertainty presents a “buy” opportunity for the intrepid investor able to perceive a more distant future. When sentiment is overwhelmingly negative, any tidbit of good news will lift the share price. Buy up to $110 per share.