Hotel chain Marriottgave investors the first glimpse into the peak summer travel season this week.
Earnings for the quarter came in at 44 cents per share, besting analyst forecasts for 40 cents per share, as the hotel chain benefited from higher prices and increased occupancy rates. Revenue per available room, a key performance measure, rose 7 percent in the quarter.
In a CNBC interview after the earnings report, Marriott CEO Arne Sorenson said “In North America, we've got building demand from corporate travelers, from group business and from leisure travelers and we've got really low supply.”
Both those factors have led to continued growth in same-store sales, Sorenson said, with “a shift toward rate growth versus occupancy growth,” which is more profitable.
Marriott is also fairly optimistic about next year, as demand growth should lead to 5 to 7 percent revenue per room growth, “which is a pretty bullish number,” the CEO said.
Unlike a Starwood , which has 45 percent of its hotel rooms overseas, international makes up a quarter of Marriott's business. Sorenson said this business is harder to predict because there’s less group travel. He also noted that even within international markets there are a number of different trends. Taking China as an example, Shanghai and Beijing are strong, but the cities that depend on manufacturing are much weaker, Sorenson pointed out.
Although Marriott is bullish on its business, particularly in North America, the stock is looking a bit pricey, according to at least one hedge fund manager.
V3 Capital Management’s Chief Investment Officer Charles Fitzgerald prefers Hyatt in the hotel industry. Hyatt is the real estate-related investment fund’s biggest position.
“It’s a fantastic company," Fitzgerald told CNBC. It has a fifth of the rooms that Marriott and Hilton do, which means there are “tremendous growth opportunities,” he added.
After disappointing Wall Street with its last quarterly earnings report, Hyatt’s stock trades at a discounted 10 times 2013 EBITDA, Fitzgerald said. Marriott, meanwhile, trades at 13 times.
With Hyatt buying back stock and having unloaded its lowest quality assets at 11 times EBITDA, “all the fundamentals are in place,” Fitzgerald said.
With lodging in the early phase of the cycle, no new supply and 65 percent of cash flow coming from the hotels Hyatt actually owns, Fitzgerald expects both earnings growth and multiple expansion.