You hear a lot of talk about tepid economies and fiscal cliffs, and I suppose the data has some bearing on things -- though I don't exactly know what. That may sound ignorant, but when this hotel and resort company reported its third-quarter results, it sounded to me like corporations are busy flying their employees around and families are going on more trips than any time in recent memory. It may be the 1% filling these hotel rooms, but the company doesn't discriminate. Political hot-button issues aside, this company has had a stellar year so far in the market, but there may be more room to run yet.
Just like home
Though the market is abuzz with news of weak third quarters, one company has already posted some pretty stellar results. Marriott (NASDAQ:MAR) handily beat analyst estimates with an EPS of $0.44 versus estimates of $0.40. More important, this represented a 52% gain over the year-ago quarter -- pretty healthy growth considering the overall economic climate. Management cited increased corporate bookings and an improving leisure travel climate as the leading areas.
CEO Arne Sorenson is very encouraging about the company's last quarter and the coming year. One of the most exciting things Sorenson mentioned in the quarterly conference call was the transition from occupancy-based growth to rate-based growth. This is the ideal growth scenario for a hotel as it boosts both top- and bottom-line income. Year over year, fee revenue was up 11%.
What international division?
Marriott is somewhat insulated from the European economic crisis as its hotels and resorts are surprisingly 75% domestic. The company is expanding in various areas around the globe, though hopefully not too rapidly. Marriott makes up around 10% of current open hotel rooms, but owns 20% of those currently in construction.
While usually you want to see a company spreading the business around the globe, in this case it's a good thing that Marriott doesn't have exposure similar to competitor Starwood Hotels' (NYSE:HOT) 45% international exposure.
The one unfortunate thing is that Marriott is a bit rich in the valuation department. Not that the company doesn't deserve its price of 19 times forward earnings, but it's a hard number to stomach for value investors. At the same time, when you compare it to Starwood, which carries a bit more risk in the European market and is building at a voracious rate in China, it trades at just a hair more on a forward basis and, in my opinion, offers investors a much better company.
Marriott is also buying back a massive amount of shares to the tune of $1.1 billion.
For the value play
If you are willing to sacrifice a bit of quality for a more attractive hotel pick, check out Hyatt (NYSE:H). Hyatt trades at only 10 times 2013 EBITDA versus 13 times for Marriott. The company is substantially smaller than Marriott and Starwood, and offers investors greater growth prospects. The company reported so-so earnings last quarter, which is why you can pick it up for a discount today.
Overall, I'm sticking with Marriott as the top hotel stock right now. I may not be rushing to buy some at this price, but the company recently reguided a bit under its previous full-year guidance, which will probably bring it down a couple of points toward the end of the year.
Fool Contributor Michael Lewis owns none of the stocks mentioned above. You can follow him on Twitter @MikeyLewy. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.