Which Stock To Pick? Hyatt Or Marathon Oil

With fears of another infectious wave stalling the economy, all travel and tourism stocks have been observing a downtrend. Moreover, the shares of upstream oil companies also fell after the OPEC+ announced plans to boost production on a monthly basis. Currently, the shares of Hyatt Hotels (NYSE: H) and Marathon Oil (NYSE: MRO) are trading 15% below pre-Covid levels. Which is a better pick? Considering the likelihood of a strong rebound in travel demand and a weak long-term outlook for the oil industry, Trefis believes that Hyatt is a better pick over Marathon Oil
MRO
to make near-term gains given the recent dip in both stocks. Moreover, Hyatt’s asset-light business model limits significant operating losses as the company’s 50% of earnings are contributed by its management & franchise segment. We compare the key financial parameters in an interactive dashboard analysis, Hyatt Hotels vs. Marathon Oil.

1. Revenue Growth

Hyatt’s growth has been higher than Marathon Oil’s over the last two years, with Hyatt revenue expanding by 11% from $4.5 billion in 2017 to $5 billion in 2019, versus Marathon Oil’s revenue expanding by 8% from $4.8 billion in 2017 to $5.2 billion in 2019. However, Hyatt observed a steeper top line contraction than Marathon Oil in 2020.

• Since 2017, Hyatt’s total room portfolio has expanded by 28% primarily driven by its franchise business.
• Hyatt has been selling its owned hotels to grow its management & franchise business in the past few years. Thus, the company enhanced its brand value by expanding the franchise business.
• Marathon Oil’s revenues are largely dependent on benchmark prices and production volumes. Given the steady rise in WTI benchmark and total production in the past three years (pre-pandemic period), the company’s top line has observed stable growth.
• While the two companies belong to different industries, broader macroeconomic growth has been the underlying driver as the oil & gas industry is dependent on travel demand and vice-versa.

2. Returns (Profits)

Coming to Returns, Hyatt’s operating margin has been higher than Marathon Oil largely due to a lower share of depreciation costs.

• As a part of the asset-light strategy, Hyatt has been converting its owned & leased hotels to managed & franchise category to limit risk and focus on expansion. Thus, depreciation costs are expected to decline in the coming years as the company’s fixed asset base gets trimmed.
• Marathon Oil’s depreciation costs have remained fairly constant and are largely comparable to annual capital expenses.
• Moreover, Hyatt’s higher operating cash flow margin (excluding reimbursement costs) highlights its better cash generation capabilities over Marathon Oil.
• Notably, profit margins of oil companies are dependent on benchmark prices, and given the volatile nature due to the pandemic, returns are likely to remain low in the near-term.

3. Risk

Marathon Oil looks like the riskier of the two companies as its enterprise value has a significantly higher share of long-term debt than Hyatt.

• In 2019, Hyatt reported $5 billion of total revenues and just $500 million of net debt. Whereas, Marathon Oil’s reported $5.2 billion of total revenues and a comparable $5 billion of net debt.
• As the downtrend in benchmark prices is expected to limit the profits of oil companies in the near-term, Marathon Oil’s higher debt is likely to weigh on operating cash and shareholder returns.

Is there a better alternative to Hyatt Hotels stock? Hyatt Hotels Stock Comparison With Peers summarizes how H compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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