Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Marriott International fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Marriott International, Inc. is a diversified hospitality company. It is a lodging company with more than 3,700 properties in 73 countries and territories. It operates and franchises hotels, including Marriott, The Ritz-Carlton, JW Marriott, Bulgari, EDITION, Renaissance, Autograph Collection, AC Hotels by Marriott, Courtyard, Fairfield Inn & Suites, SpringHill Suites, Residence Inn, TownePlace Suites, ExecuStay, and Marriott Executive Apartments brand names. It operates in four segments: North American Full-Service Lodging, which includes the Marriott Hotels & Resorts; North American Limited-Service Lodging, which includes the Courtyard; International Lodging, which includes the Marriott Hotels & Resorts, and Luxury Lodging, which includes The Ritz-Carlton. In January 2014, the Company announced that it has sold its leasehold interests in the Renaissance Barcelona Hotel to an affiliate of the Qatar Armed Forces Investment Portfolio (QAFIP).
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – FAIL
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
|MG Opinion||Fairly Valued|
|Value Based on 3% Growth||$19.51|
|Value Based on 0% Growth||$11.44|
|Market Implied Growth Rate||16.11%|
|Net Current Asset Value (NCAV)||-$21.16|
Balance Sheet – 12/31/2013
Earnings Per Share
Earnings Per Share – ModernGraham
Marriott International does not satisfy the requirements of either the Defensive Investor or the Enterprising Investor. For the Defensive Investor, the turn offs are the poor current ratio, the lack of earnings stability or growth over the ten year period, and the high PEmg ratio. For the Enterprising Investor, the failings are found in the high level of debt relative to the current assets and the lack of earnings growth over the five year period. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities, through a review of 5 Undervalued Companies for the Defensive Investor and 5 Undervalued Companies for the Enterprising Investor. From a valuation perspective, the company appears to be fairly valued, after growing its EPSmg (normalized earnings) from $0.60 in 2009 to $1.35 in 2013. This level of growth supports the market’s implied estimate of 16.11% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety in relation to the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. What do you think? What value would you put on Marriott International (MAR)? Where do you see the company going in the future? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens? It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: The author did not hold a position in Marriott International (MAR) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.