Marriott Flourishes Amid Uncertain Economy - Analyst Blog

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On Jun 24, 2014, we issued an updated research report on Marriott International, Inc. ( MAR ).

On Apr 28, this leading hotelier posted strong first quarter 2014 results with earnings and revenues beating the Zacks Consensus Estimate. Adjusted earnings of 55 cents increased 27.9% year over year and were above management's guidance range of 47 to 52 cents per share driven by an increase in occupancy and room rates in North America.

Despite fewer days in the first quarter of 2014 compared to the year-ago period, revenues increased 4.8% year over year, attributable to an increase in revenues at all its segments and solid revenue per available room (RevPAR) growth. Adjusted operating margin increased 400 basis points to 41.0% due to increased business travel that increased occupancy.

With the economy beginning to improve gradually, the U.S. hotel industry has started to grow. Group booking in North America is improving at a rapid pace. The company stated at the earnings call that group bookings have increased from 4.0% to 5.0% over the three months period. The company expects group bookings to remain modestly higher year over year in the second quarter and sees strength in the corporate and leisure transient business.

Moreover, with a low supply growth environment, the company 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.

Additionally, the company is consistently trying to expand its presence worldwide. Also, the company plans to significantly grow its global portfolio of luxury and lifestyle brands. It intends to add more than 200 luxury and lifestyle hotel projects over the next several years. Moreover, the company is trying to expand its footprint in the potential markets of Asia, Africa, Middle East, Europe and Latin America.

Over the past 20 years, the company has scaled up its number of brands from 5 to 20. Currently, it has 800 franchisees operating in 78 countries and has 200,000 rooms compared to 100 franchisees, 21 countries and 30,000 rooms 20 years ago. Also, its worldwide presence has increased tremendously over the same period.

In 2013, the company achieved record signings of 67,000 rooms worldwide and expects to maintain the trend in 2014 too. The company expects 5.0% net increase in number of rooms in 2014. Driven by its strong development pipeline, the company has also increased its RevPAR and earnings guidance for 2014.

Despite Marriott's immense growth potential, a deteriorating political situation and a weak economy have decelerated overall Latin American sales. Moreover, tighter credit markets in China, the political turmoil in Thailand, and Russian actions in Crimea have further added to the woes. Further, upcoming elections in Brazil and Indonesia make the situation more unpredictable. Egypt is in the midst of political instability while riots are affecting growth prospects in Nigeria.

According to the European Central Bank, though financial markets in the region have improved, they are yet to reach pre-crisis levels. Given Marriott's significant presence in the region, the current sluggishness in Eurozone may limit the growth of vacation rental businesses. An uncertain political situation in Ukraine seems to have a negative impact on the economic sentiment in the Eurozone. Eurozone recovery is not expected to be strong enough in 2014, thereby remaining a concern for this Zacks Rank #3 (Hold) company.

Other Stocks to Consider

Better-ranked stocks in the hotel industry include Wyndham Worldwide Corp. ( WYN ), Marriott Vacations Worldwide Corporation ( VAC ) and Hilton Worldwide Holdings Inc. ( HLT ). All these stocks have a Zacks Rank #2 (Buy).


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

WYNDHAM WORLDWD (WYN): Free Stock Analysis Report

MARRIOTT INTL-A (MAR): Free Stock Analysis Report

MARRIOT VAC WW (VAC): Free Stock Analysis Report

HILTON WW HLDG (HLT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: WYN , MAR , VAC , HLT

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