On Dec 31, we issued an updated research report on Marriott International, Inc. (MAR).
On Oct 28, 2014, Marriott International posted third quarter 2014 results, beating the Zacks Consensus Estimate for both earnings and revenues. Owing to the better-than-expected results, the company also raised its earnings guidance for 2014.
Adjusted earnings of 65 cents per share were up 25% year over year, owing to an increase in revenue per available room (RevPAR) and strong margins. Revenues of $3.46 billion increased 9.5% year over year reflecting an increase in revenues at all its segments and solid RevPar growth.
Owing to an increase in demand and occupancy rate, average daily rate improved significantly in the domestic market as well as the international market. In the third quarter, RevPAR for worldwide comparable system-wide properties grew 8.1%, higher than management’s expectation of 5.5% to 7.5% increase, driven by a 4.5% rise in average daily rate (ADR).
Group bookings in North America are improving at a rapid pace. Driven by improved group demand and greater pricing power, the company is witnessing strong RevPar. Moreover, with a low supply growth environment and continued boost in demand, Marriott International expects to be able to raise its room rate, going forward. Also, the company is making efforts to further increase room rates by reducing discounts and special offers.
Given the company’s property locations and strong brand recognition, we believe the company is well poised to benefit from higher market demand on the back of stepped-up business travelling in major North American and international locations.
Marriott is consistently trying to expand its presence worldwide and expects worldwide unit growth to accelerate from 3% average net growth in the past 4 years to 5% to 7% over the next 4 years, given the strength in room signings, particularly conversions and the pace of construction. Further, the company plans to significantly grow its global portfolio of luxury and lifestyle brands. Over the next few years, the company intends to add more than 200 luxury and lifestyle hotel projects.
Digital innovations and social media are starting to play an increasingly important role in hotel bookings. Therefore, Marriott is also trying to charm guests with Marriott mobile app for tablets and smartphones that helps guests to manage their bookings, access interactive maps/GPS as well as reward programs.
Amid these efforts, sluggish economies in Brazil, Chile and Argentina are weighing on demand in these regions. Moreover, the political turmoil in Thailand, visa restrictions and concerns about the corona virus in Saudi Arabia and Vietnam’s dispute with China could dampen revenues of the company. Meanwhile, Japan is experiencing pressure owing to a rise in taxes in the region, which might hurt revenues of the brand.
Also, the Ebola crisis has begun to negatively impact bookings in Nigeria. Moreover, business in Europe continues to be clouded by unrest in Ukraine and Russian actions in Crimea. Going forward, weakening trends in Germany and soft economic conditions in France are expected to dampen the revenues of the company. Marriott presently has a Zacks Rank #2 (Buy).
Other stocks in the hotel industry, which look attractive at current levels, include Choice Hotels International Inc. (CHH), Intercontinental Hotels Group plc (IHG) and Hilton Worldwide Holdings Inc. (HLT). All these stocks carry a Zacks Rank #2.
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