We reaffirm our Neutral recommendation on
Marriott International Inc.
) 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
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
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.
Hyatt Hotels Corporation
Wyndham Worldwide Corporation
). While Home Inns & Hotels sports a Zacks Rank #1 (Strong
Buy), Hyatt and Wyndham carry a Zacks Rank #2 (Buy).
HYATT HOTELS CP (H): Free Stock Analysis
HOME INNS&HOTEL (HMIN): Free Stock Analysis
MARRIOTT INTL-A (MAR): Free Stock Analysis
WYNDHAM WORLDWD (WYN): Free Stock Analysis
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