We reaffirm our Neutral recommendation on Marriott International Inc. (MAR) following a cautious outlook for 2013 and 2014. Though improving business in North America is encouraging, sluggish growth in China and Europe keep us on the sidelines.
Why the Reiteration?
Marriott has established a significant presence in most major markets in the United States and across the world. The company’s growing North American business and solid development pipeline helped drive revenues during the quarter. Since 2009, the company’s hotel system size has increased 12%. The company also focuses on expanding its footprint in the international markets, especially Asia, Middle East, Europe and Latin America, which boast solid growth potential.
Marriott expects a favorable year ahead due to consistently strong demand and pricing in its business especially in North America. A low supply growth environment will likely help the company to raise prices. Moreover, the hotelier is making efforts to increase room rates by reducing discounts and improving the mix.
Marriott’s foray into the upper-moderate and economy segments is a high point in its growth story. Asset sale is part of the company’s long-term strategy to improve financial flexibility, which in turn will maximize shareholders’ value. In keeping with the strategy, Marriott is going to sell three Edition-branded hotels (located in London, Miami Beach and Manhattan) for $800 million. These properties, currently under construction, are expected to be ready for sale by 2015. Marriott, however, would continue to manage the properties post sale.
Despite these positives, some concerns prevent us from being too optimistic on the stock. Given its significant presence in Europe, sluggishness in Euro-zone may limit the company’s growth in the region. Further, European corporate customers remain cautious when it comes to room rates due to the ongoing austerity measures.
Government austerity and weak economic condition in China also remain near-term concerns. Moreover, we remain skeptical about the budget sequestration in the U.S., effective since Mar 1, 2013, that may hamper the Zacks Rank #3 (Hold) company’s business momentum in the country to some extent.
Some better-ranked stocks in the hotels sector include Home Inns & Hotels Management Inc. (HMIN), Hyatt Hotels Corporation (H) and Wyndham Worldwide Corporation (WYN). While Home Inns & Hotels sports a Zacks Rank #1 (Strong Buy), Hyatt and Wyndham carry a Zacks Rank #2 (Buy).
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