A Good Time To Buy?
A GOOD TIME TO BUY?
Mariott Internatinal, Inc.
Delta Air Lines, Inc.
Walt Disney Holding Co.
Submitted
to
Dr. Halvard Nystrom
EMGT 452, NTU EF-7020-T – Advanced Financial Management
Department of Engineering Management
University of Missouri-Rolla
Prepared by
Brad Blau
Alfredo Carerro
Benjamin Kroeter
May 10, 2002
47
A Good Time To Buy?
Table of Contents
Introduction 1
Project Scope 1
Evaluation Criteria for Analysis 1
Background and History Summary of Marriott International, Inc. 2
Business Summary 5
Analysis 7
Question 1. Is the price of the stock in the buy zone of greater than $10 and less than $60? 7
Question 2. Does the company keep their debt “reasonable”? 7
Question 3. Does the company pay a dividend? 9
Question 4. Are the historical and projected earnings positive? 10
Question 5. Is management controlling costs and revenue? 11
Other issues 14
Intrinsic value 14
Price/Earnings Discussion 15
Summary 17
Background and History Summary of Delta Air Lines, Inc. 18
Business Summary 21
Question 1. Is the price of the stock in the buy zone of greater than $10 and less than $60? 22
Question 2. Does the company keep their debt “reasonable”? 22
Question 3. Does the company pay a dividend? 23
Question 4. Are the historical and projected earnings positive? 23
Question 5. Is management controlling costs and revenue? 24
Other issues 26
Intrinsic value. 26
Background and History Summary of The Walt Disney Company 29
Business Summary 32
Analysis 35
Question 1. Is the price of the stock in the buy zone of greater than $10 and less than $60? 35
Question 2: Does the company keep their debt “reasonable”? 35
Question 3: Does the company pay a dividend? 38
Question 4: Are the historical and projected earnings positive? 39
Question 5: Is management controlling costs and revenue? 40
Other issues 43
Intrinsic value 43
Price/Earnings Discussion 44
Summary 45
Conclusion 47
Table of Figures
Figure 1: Marriott International stock prices since March 1998. 7
Figure 2: Marriott Corporation, Inc. Historical Dividends per Share. 9
Figure 3: Histories of Earnings per Share, Marriott International, Inc. 10
Figure 4: Projected earnings per share, Marriott International, Inc. 11
Figure 5: Pre-tax Profit Margin for Marriott International, Inc. 12
Figure 6: Marriott International, Inc. Return on Equity 13
Figure 7: Marriott International, Inc. ROE, ROA and ROIC 13
Figure 8: Industry Comparisons with Marriott International, Inc. 14
Figure 9: Intrinsic Stock and Current Stock Selling Prices. 15
Figure 10: P/E and P/S Values for Marriott International, Inc. 16
Figure 11: Trailing 12 Months P/E and P/S comparison with industry. 17
Figure 12: Comparisons between industry and Marriott. 17
Figure 13: Ratios. 18
Figure 14: Delta Air Lines, Inc. stock prices since March 1997. 22
Figure 15: Delta Air Lines, Inc. historical dividends per share. 23
Figure 16: History of Earnings per Share, Delta Air Lines, Inc. 23
Figure 17: Projected earnings per share, Delta Air Lines, Inc. 24
Figure 18: Pre-tax Profit Margin for Delta Air Lines, Inc. 24
Figure 19: Delta Air Lines, Inc. Return on Equity. 25
Figure 20: Marriott International, Inc. ROE, ROA and ROIC. 25
Figure 21: Industry Comparisons with Delta Airlines, Inc. 26
Figure 22: P/E and P/S Values for Delta Airlines, Inc. 27
Figure 23: Trailing 12 Months P/E and P/S comparison with industry. 27
Figure 24: Comparisons between industry and Delta 28
Figure 25: Ratios. 28
Figure 26. Disney International stock prices since March 1997 35
Figure 27: Disney Corporation historical dividends per share. 38
Figure 28: History of Earnings per Share, Disney Corporation. 39
Figure 29: Projected earnings per share, Disney Corporation. 40
Figure 30: Pre-tax Profit Margin for Disney Corporation 40
Figure 31: Disney Corporation Return on Equity 41
Figure 32: Disney Corporation ROE, ROA and ROIC 42
Figure 34: Intrinsic Stock and Current Stock Selling Prices 43
Figure 35: P/E and P/S Values for Disney 44
Figure 36: Trailing 12 Months P/E and P/S comparison with industry. 45
Figure 38: Ratios 46
Table of Tables
Table 1: Summary of questions and answers for analysis of Mariott 47
Table 2: Summary of questions and answers for analysis of Delta 47
Table 3: Summary of questions and answers for analysis of Disney 47
47
A Good Time To Buy?
Introduction
As part of the course NTU EF-7020-T and EMGT 452, Financial Management, taught at the University of Missouri- Rolla, the students choose a project and turn it in to the course instructor. The team members on this project are:
§ Mr. Brad Blau
§ Mr. Alfredo Carrero
§ Mr. Benjamin Kroeter
The team will evaluate certain related industry stocks and determine whether they are valued appropriately to purchase now. The team selected the following three stocks:
§ Marriott International Inc.
§ Delta Air Lines Inc.
§ Walt Disney Holding Co.
Project Scope
The scope of the following sections of the project will consist of the following:
§ Provide a brief historical perspective of the selected companies.
§ An assessment of the selected companies using financial and stock evaluation tools taught in this course.
§ A recommendation, based upon that assessment, whether or not it is a good opportunity to purchase the selected stock.
Evaluation Criteria for Analysis
To keep the evaluation consistent, our team developed a consistent approach to evaluate each company. We endeavored to ensure an “ apples to apples” comparison of the companies, and developed a set of questions we applied to the companies under scrutiny. Based upon the responses to those sets of questions, we would make recommendations whether we as a team would advocate the purchase of these individual stocks. A primary motivation for this research is that the post September 11, 2001 condition may afford a window of opportunity for enhancing one’s portfolio with these stocks.
We selected the following questions to base our analysis on:
- Is the price of the stock in the buy zone of greater than $10 and less than $60?
Rationale: Stocks should be mature enough to be priced higher than “penny stocks,” yet low enough to take advantage of lot purchases.
- Does the company keep their debt “reasonable”?
Rationale: Long-term debt to equity ratios, according to many analysts, should not exceed .5 (or 50%). This may be problematic, however, depending on the company.
- Does the company pay a dividend?
Rationale: A company should be making profits and sharing those profits with the stockholder. It is not enough to simply plow profits back into the company; the company must also actively treat their stockholders well. Stockholders should ask themselves “Would I be satisfied if I used the product of this company”?
- Are the historical and projected earnings positive?
Rationale: It is important that companies have an established growth pattern over time. This indicates the products are competitive, and that the company has established a niche. It is also important the company projects its earnings and has a plan in place to achieve the expected earnings.
- Is management controlling costs and revenue?
Rationale: Management of the company must have a vision as to where they see the company five years from now. If they do, they should discuss that plan and modify that plan if unforeseen circumstances occur. Can they react? Is the company too debt ridden to react? This question may be a challenge to answer, as history may not be a good indicator of the future.
Background and History Summary of Marriott International, Inc.
Marriott International, Inc. is a leading worldwide hospitality company with over 2,200 operating units in 60 countries and territories. With 21 distinct brands and businesses, Marriott offers a broad portfolio of hospitality brand worldwide.
Alone, each of these brands is a leader in its category, with a high level of customer preference and excellent growth and profit potential.
Collectively, the unique strength and competitive advantages of these brands form a powerful network – one that allows them to effectively leverage economies of scale and capitalization into profitable business opportunities.
The entire company is strengthened through this network. The resulting growth potential, and the reliability of that growth, is very high.
Marriott’s wide distribution ensures a strong presence wherever our customers want us to be, and our brands are becoming more recognizable and preferred in global markets. This makes us stronger each year. The proof is in our results.[1]
The selection above is a paraphrase from the 2000 annual report, the most recent annual report available (Marriott will release the 2001 report soon). We asked two questions: Is this company as strong as the chairman states? Is the company still in a position to realize growth, as it has been historically?
The annual report states the corporation grew from a nine-seat root beer stand. Further historical facts will illuminate this statement:
§ “Feb. 13, 2001 Marriott International joins Bulgari Spa to launch new luxury hotel brand, Bulgari Hotels & Resorts; operated through a new Luxury Group to be based in Atlanta.
§ May 2, 2000 Marriott International and Hyatt Corporation launch e-based procurement network for hospitality industry.
§ July 28, 1999 ExecuStay by Marriott acquires Executive Living, Inc. of Columbus, Ohio and enters into exclusive agreement with JPI-Dallas.
§ May 26, 1999 Marriott Vacation Club International launches new moderately priced resorts - Horizons by Marriott Vacation Club.
§ March 29, 1999 Marriott International completes acquisition of ExecuStay; launches corporate housing business - ExecuStay by Marriott
§ May 20, 1998 Marriott International announces conversion to single class of common stock effective May 21.
§ April 30, 1998 Marriott International announced it converted the Parc 55 Hotel in San Francisco to a Renaissance hotel and designated it as Marriott's 1,500th hotel worldwide.
§ March 27, 1998 Marriott International completes spinoff and merger transactions resulting in "New" Marriott International and Sodexho Marriott Services.
§ March 19, 1998 Marriott International increased its ownership interest in The Ritz-Carlton Company LLC to approximately 98 percent.
§ February 5, 1998 Marriott International reports net income of $335 million in 1997 and sales totaled $12 billion.
§ October 1, 1997 Marriott International announces plans to merge its food service and facilities management business with Sodexho Alliance's North American operations, and spin off to shareholders a new company comprising its lodging, senior living and distribution services businesses.
§ March 31, 1997 Marriott International acquires Renaissance Hotel Group for approximately $1 billion. Adds three brands (Renaissance, Ramada International and New World) and doubles Marriott's presence overseas.
§ March 6, 1997 Marriott opens its first TownePlace Suites in Newport News, VA.
§ February 6, 1997 Marriott International introduces new brand, Marriott Executive Residences.
§ February 6, 1997 William J. Shaw named president and chief operating officer of Marriott International. Bill Marriott retains position of chairman and chief executive officer.
§ February 6, 1997 Marriott International reports net income soared 24% in 1996 as sales top $10 billion.
§ November 25, 1996 Marriott International awarded nationwide food service distribution contract for Boston Market and Einstein/Noah Bagel Corporation.
§ September 17, 1996 Marriott International recognized as family-friendly company by Working Mother and Business Week.
§ June 17, 1996 Marriott Management Services acquires Russell & Brand, Ltd; a UK-based food service company.
§ June 13, 1996 Marriott International acquires Forum Group, Inc., a leading operator of senior housing and merges it with Marriott's Senior Living Services business.
§ March 6, 1996 Marriott introduces its all-suite economy hotel--Fairfield Suites by Marriott.
§ January 2, 1996 Host Marriott Corporation divides into two separate companies. Host Marriott continues to own hotels and real estate; Host Marriott Services Corporation will operate concessions at airports, on tollroads and at sports and entertainment attractions.
§ November 27, 1995 Marriott Management Services acquires Taylorplan Services, a custodial and food service company based in the United Kingdom.
§ August 9, 1995 Host Marriott Corporation announces plan to divide, through a special dividend, its operations into two separate companies.
§ October 8, 1993 Marriott completes split of its operations into two companies -- Marriott International and Host Marriott Corporation.
§ October 5, 1992 Marriott Corporation announces plan to divide its operations into two separate companies through a special dividend.
§ September 21, 1992 Host completes acquisition of Dobbs airport concessions.
§ April 16, 1990 Marriott sells its Roy Rogers restaurant division to Hardee's Food System for $365 million.
§ December 18, 1989 Marriott announces corporate restructuring. Plan includes sale of company's fast food and family restaurants. Company plans to sharpen its focus on megamarkets in lodging and contract services.
§ December 15, 1989 Marriott completes transfer of airline catering division to Caterair International, a private company led by several members of Marriott's In-flite Services division senior management.
§ June 16, 1988 Marriott acquires Basic American Retirement Communities (BARC), of Indianapolis, giving Marriott a major presence in the rental retirement market.
§ November 4, 1987 Marriott transfers Big Boy restaurant system franchise rights to Elias Brothers of Warren, Mich.
§ October 28, 1987 Marriott enters economy-lodging segment with the opening of the first Fairfield Inn in Atlanta, Georgia.
§ September 18, 1987 Marriott stock listed on the Tokyo Stock Exchange.
§ July 9, 1987 Marriott acquires The Residence Inn Company, an all-suite hotel chain targeted toward extended stay travelers.
§ April 1, 1987 Marriott completes expansion of its Worldwide Reservation Center in Omaha, Nebraska, making it the largest single-site reservations operation in U.S. hotel history.
§ August 4, 1986 Marriott acquires Saga Corporation, a diversified food service management company, making Marriott the largest company in food service management in the United States.
§ November 22, 1985 Marriott acquires Howard Johnson Company, selling hotels to Prime Motor Inns and keeping 350 restaurants and 68 turnpike units
§ October 3, 1985 J.W. Marriott, Jr. named chairman of the board.
§ February 25, 1985 Marriott completes acquisition of Service Systems, a contract food service company.