Starwood Hotels & Resorts Worldwide (NYSE: HOT) is a unique and forward-looking company. What has set it apart from its peers is that when other hoteliers were targeting the baby boomer generation, Starwood was setting itself up for the future by targeting the new generation of high-end travelers. These travelers have different demands when it comes to accommodations and amenities. Starwood recognized this trend and did everything it could to prepare for success. So far, so good.
Starwood continues to aim for growth, especially with its W Hotels brand. We'll take a look at this brand's focus as well as its most recent opening. We'll also take a look to see if Starwood is likely to present more investment potential than Marriott International (MAR +5.27%) and/or Hyatt Hotels (H +5.56%). The Starwood/Marriott comparison is interesting considering these two companies are almost exactly the same size in terms of market capitalization.
W Hotels strategy
The first W Hotel opened in midtown Manhattan 15 years ago, going by the name of W New York. Since that time, W Hotels had made significant improvements to its brand. The biggest driver early on was whatever/whenever service. In other words, when you stay at a W Hotel, you can have whatever you want at any time. This philosophy is still practiced today.
Through the years, W Hotels has grown into being a hot spot, or a place to be seen, for today's high-end traveler. Instead of just being a hotel where you sleep, W Hotels locations are now centered around design, fashion, and music. For example, W Hotels offers a DJ Lab for today's top emerging DJs. These DJs will be coached by industry icons prior to a W Hotel tour.
When you visit the W Hotel, you should expect music to be a big theme. W Hotels has also done away with the traditional hotel lobby, instead featuring a W Living Room, which offers a cocktail culture.
W Hotels plans to bring its top-notch personal service offerings and innovations to many emerging markets in the next five years, including Bogata, Beijing, Mumbai, and Panama. In the meantime, W Hotels just opened its 45th location.
No. 45
W Hotels recently opened its 45th hotel, the W Verbeir, in Switzerland. If you want a quick demo, as well as a peak into what W Hotels offers today, then it's highly recommended that you watch the short video on the company's website: http://www.wverbier.com/.
W Verbeir offers 123 rooms to a jet-setting crowd, and it's conveniently located right next to the main gondola, which makes for an easy ski-in/ski-out experience. Amenities for the hotel include the W Café, Arola restaurant, W Living Room, Away Spa, FIT, and WET pool deck.
This is just one example of how W Hotels is about classy entertainment, as opposed to just a hotel to lay your head down at night. Impressive so far, but let's see how Starwood compares to its peers from performance and fiscal standpoints.
Starwood vs. Marriott and Hyatt
First take a look at total shareholder return (stock appreciation plus dividend payments) for Starwood versus its peers since 2009:
Starwood total return price data by YCharts
That's the what. Now let's take a look at the why. Let's start with Hyatt. While it has seen consistent top-line growth over the same time frame, selling, general, and administrative expenses have outpaced revenue:
Hyatt revenue (trailing-12 months) data by YCharts
Marriott, on the other hand, has seen revenue outpace SG&A expenses:
Marriott revenue (trailing-12 months) data by YCharts
The problem here is inconsistency. If you would prefer to invest with a company that has seen revenue consistently outperform SG&A expenses, then you might want to consider Starwood:
Starwood revenue (trailing-12 months) data by YCharts
Starwood is trading at a slight premium to Marriott, trading at 24 times forward earnings, whereas Marriott is trading at 20 times forward earnings. We can immediately eliminate Hyatt as the best option, as it's trading at 41 times forward earnings while its expenses are outpacing its top line.
Getting back to Starwood versus Marriott, Starwood yields 1.8%, whereas Marriott yields 1.4%. They both have market caps of approximately $13.9 billion. Therefore, cash flow comparisons are important.
During the past year, Starwood generated $1.1 billion in operating cash flow. Marriott generated $986 million in operating cash flow. Once again, close, but Starwood is slightly more impressive. Additionally, Starwood's balance sheet is bit healthier. It has $694 million in cash and short-term equivalents versus $1.7 billion in long-term debt. Not ideal, but given the cash position and cash flow, the company should have no problem paying down debt.
Marriott has $144 million in cash and short-term equivalents versus $3.2 billion in long-term debt. Marriott should also be able to pay down debt thanks to strong cash flow, but it still has a larger mountain to climb.
The catch
There is a catch. Both companies rely on discretionary income. As long as the high-end consumer remains in good shape, Starwood is likely to outperform Marriott. Marriott, while not resilient, should offer at least a little more downside protection since its brands are widely diversified and target a wider range of consumers. As always Foolish investors should do their own research before making any investment decisions.
