After the acquisition of Starwood Hotels & Resorts on Sep 23, 2016, Marriott International, Inc. MAR has become the world’s largest hotel company. Currently, it has more than 6,100 properties across 124 countries and territories, under 30 brand names.
Notably, post acquisition of Starwood, shares of the company have gained 52.7%, while the broader S&P 500 index rose 12.1%.
Moreover, given strong transient demand along with improvements in business and leisure travel, Marriott is poised to grow in the near as well as long term.
Let’s have a look at why it would be a wise decision to add the stock to your portfolio now:
Attractive Brand Position, Acquisitions to Drive Growth
Marriott’s extensive portfolio and a strong brand position allow it to charge a premium room rate in the highly competitive lodging industry. Given its property locations, we believe that the company is well poised to benefit from the increasing market demand backed by stepped up business as well as leisure traveling in major North American and international locations.
Meanwhile, with the completion of the Starwood acquisition, Marriott's distribution has more than doubled in Asia and the Middle East & Africa combined. In fact, the buyout is likely to result in a bigger brand with increased scales and a robust development pipeline in the long run.
Interestingly, even with 30 brands under portfolio, the company has not ruled out further M&A activities. It holds about 14–15% market share in the U.S. and therefore has further room to grow.
Solid Expansion Plans
In addition to domestic markets, Marriott is consistently trying to expand its presence worldwide and capitalize on the demand for hotels in the international markets. Moving ahead, the company plans to significantly grow its global portfolio of luxury and lifestyle brands. Meanwhile, it anticipates net room additions of 6% in 2017.
Outside the U.S., the hotel company is trying to expand its footprint, especially in Asia, Latin America, Middle East and Africa. Meanwhile, the hotel company’s European pipeline has grown consistently in the recent past and is expected to continue, going forward.
We expect the company’s continuous expansion plans to add immensely to the top line and boost its overall performance as well.
Embracing Social Media and Smartphones to Build Loyalty
Digital innovations and social media are starting to play an increasingly important role in hotel bookings. Marriott too continues to improve the functionality of its website Marriott.com, associated mobile smartphone applications and a mobile website that connects to Marriott.com.
Additionally, post its acquisition of Starwood, Marriott has linked industry-leading guest loyalty programs – Marriott Rewards, Ritz-Carlton Rewards and Starwood Preferred Guest – and announced the matching of member status between the programs, thereby leading to an even larger loyalty community.
These investments in technology for hotel bookings are likely to improve guest experience and thus boost occupancy.
Marriott delivered return on equity (ROE) of 27.8% in the trailing 12 months compared with the industry’s gain of 8.7%. This supports its growth potential and indicates that the company reinvests more efficiently compared with its peers.
Earnings History and Estimate Revisions
Marriott’s earnings surpassed the Zacks Consensus Estimate consistently over the last 13 consecutive quarters, with an average positive surprise of 5.21% in the trailing four quarters.
Moreover, the Zacks Consensus Estimate for Marriott’s current quarter’s earnings has moved up nearly 1%, reflecting five upward revisions versus two downward revisions, over the last 60 days. Also, current year’s earnings estimates have inched up 3.3%, on the back of eight upward revisions versus no downward revision.
All these positive earnings estimate revisions testify the unwavering confidence that analysts have in the company and substantiate the Zacks Rank #2 (Buy) for the stock. Further, for 2017, sales growth is pegged at a solid 25.2% while earnings per share (EPS) is expected to grow nearly 6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lingering political uncertainties in key international markets along with currency headwinds remain concerns for Marriott as well as most of the other hotel chains including Hyatt Hotels Corporation H, Hilton Worldwide Holdings HLT and Wyndham Worldwide Corporation WYN.
However, we believe that the company’s unmatched portfolio of lodging brands, an increased demand for travel, and continual expansion efforts will pave the way for growth this year.
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