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We remain Neutral on one of the leading hospitality companies, Marriott International, Inc. (MAR - Analyst Report), following mixed second-quarter 2013 results. While the company’s earnings in the second quarter were in line with the Zacks Consensus Estimate, its sales beat the same.

Why the Reiteration?

On Jul 31, Marriott posted second-quarter 2013 earnings of 57 cents per share which were in line with the Zacks Consensus Estimate but above the year-ago level of 42 cents by 35.7%. The year-over-year rise in the earnings was led by the company’s higher top line, margin expansion and lower share count from share buyback activities.

Total revenue was up 18% year over year to $3.26 billion and also beat the Zacks Consensus Estimate of $3.23 billion by nearly 1%. Marriott’s growing North American business and continued expansion of its lodging properties helped drive revenues during the quarter.

Overall, we remain encouraged by the company’s wide brand portfolio, consistent expansion strategy and its venture into the economy segment. Since 2009, the company’s hotel system size has increased 12%. A significant portion of the company’s properties is situated outside the U.S. including Asia, Middle East, Europe and Latin America, which ensures wide international exposure. At the end of the second quarter of 2013, Marriott had approximately 3,847 properties with 666,132 rooms. The company expects to add 30,000 rooms globally in 2013.

Asset sale is another sweet spot for the company. 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 would continue to manage the properties post sale. The asset sale is part of the company’s long-term strategy to strengthen its financial flexibility, which in turn will maximize shareholders’ value.

Despite these enthusiastic facts, some concerns prevent us from being too optimistic on the stock. In the recently concluded second quarter, the company lowered its earnings guidance to a range of $1.92–$2.03 from the previous estimate of $1.93–$2.08 owing to the expected increase in general, administrative and other costs and lower operating income. For 2013, the company also trimmed its revenue per available room (RevPAR) outlook due to sluggish economic growth in Europe and in some areas in the Asia-Pacific region.

According to management, government austerity, geo-political tension and weak economic condition in China remain near-term concerns. In addition, 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.

Other Stocks to Consider

Some other hoteliers that are worth considering at the current level include Hyatt Hotels Corporation (H - Snapshot Report), Marriott Vacations Worldwide Corp. (VAC - Snapshot Report) and China Lodging Group, Limited (HTHT - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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