Note to self: Before dying, visit Via Privata Fratelli Gabba 7/b, Milan, Italy. This is the new Bulgari Hotel Milano, with rooms that start at $600 a night and a pool that jeweler Bulgari has lined in gold mosaic. Despite my usual stinginess, one long swim in that pool beckons to me as a worthwhile delight.
Credit the hotel's manager and part-owner, Marriott International, with getting a cheapskate like me to dream about the Bulgari. The world's No. 1 hotelier is at the top of its game, with hotel brands ranging from Bulgari and Ritz-Carlton to the flagship Marriotts and its Renaissance Hotels to limited-service SpringHill Suites and Fairfield Inns. On Feb. 8, Marriott is due to unveil 2004 results, and Wall Street expects it will report that revenues grew 11%, to $10 billion, and profits leaped 25%, to $2.43 or so a share. The stock recently neared 64, up by more than half from 2004 lows.
In part, the stock is only bouncing back from a depression brought on by war, tepid economic growth, and fears of terrorism. So why am I so unenthusiastic about the shares now? Not because there's anything wrong with the company's strategy that aims to produce as much cash as possible while minimizing the amount of capital tied up in hotels and time-share resorts. It's simply a matter of a) price, and b) watching what those who know more than I know are doing.
ON THE FIRST SCORE, Marriott today commands a premium among the big three hotel chains. Its enterprise value -- that is, stock market capitalization plus net debt -- comes to more than 16 times estimates of last year's earnings before interest, taxes, depreciation, and amortization. That's well above those of its two leading stock-market rivals. Meantime, its earnings growth is widely expected to slow sharply this year, to perhaps 17%, from last year's 25%.
In other words, for all of its operating power, Marriott has become unattractive to investors who heed the prices they pay. A case in point is Southeastern Asset Management. This Memphis firm is a noted buyer, and patient holder, of deep-value stocks. This time a year ago, it owned more than 7% of Marriott. It dumped most of that last summer "when the stock approached our appraisal," Southeastern told its clients in a recent report. "The sale was bittersweet. The company had been a core holding for a number of years, and it is extremely difficult to replace companies that consistently grow value." By yearend, Southeastern had sold the last of its Marriott. A Marriott spokeswoman told me she expects value investors such as Southeastern to buy the stock again one day.
Then, there are the insiders, who have been trimming back, too. Because the Marriott family, led by Chief Executive J.W. "Bill" Marriott Jr., controls many chunks of stock via a variety of trusts, its recent sales can be dismissed as driven by such financial planning concerns as diversification. But many other insiders also have been selling, notably veteran Chief Financial Officer Arne Sorenson. He sold 21,668 shares on Dec. 20, which happened to be the day Marriott peaked at 63.99. He received average proceeds of 63.40 a share, for a total of nearly $1.4 million. The prior December, he sold none.
Perhaps the insiders' sales were part of a prearranged diversification plan? Marriott's spokeswoman said that was not the case, but noted that the execs have most of their net worth in the stock, so selling some is expectably prudent. Naturally, there's no reason successful execs shouldn't trade some of the stock they earn for cash. There's also no reason the cash they get should be yours.