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Marriott (MAR) Q1 Earnings: Can the Stock Pull a Surprise?

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Marriott International, Inc. (MAR - Free Report) is set to report first-quarter 2016 results on Apr 27, after the market closes.

Last quarter, the company delivered a positive earnings surprise of 1.32%. In fact, the company has surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average positive surprise of 3.06%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Marriott expects earnings in the range of 81 cents to 85 cents per share for the first quarter. The Zacks Consensus Estimate of 84 cents lies near the high end of the guided range.

Given the property locations and strong brand recognition, Marriott is poised to benefit from growing demand backed by its stepped-up business and rising leisure traveling in the major North American markets. Moreover a low supply growth environment and greater pricing power should lead to strong RevPAR growth. Meanwhile, the company is capitalizing on digital innovation and social media, which is driving hotel bookings. Driven by these factors, RevPAR in North America is expected to grow 2–4% in the first quarter.

International system-wide RevPAR is also expected to increase 2–4% this quarter backed by strong demand across certain important markets of Europe, like London and Amsterdam, as well as in India, Japan and Thailand. Additionally, the Mexican and Caribbean markets are performing well.

However, political disruption in the Middle East might hurt RevPAR in the to-be-reported quarter. Moreover, a sluggish economy in Brazil has been hurting demand in the region. The slowdown in the Chinese economy and persistent political disruption in Hong Kong may also prove to be headwinds in the quarter.Further, security concerns would continue to hurt demand in Paris, Brussels and to a certain extent, in London.

Also, negative foreign currency impact would hurt Marriott’s revenues as the strengthening dollar is eroding the value of international sales. The company is simultaneously bearing the brunt of the Venezuelan currency devaluation. Such volatility in exchange rates is expected to hurt revenues in the upcoming quarter. Apart from that, in the domestic market, the company is facing competition in New York due to a continuous increase in the number of hotels, which is limiting room rents and thus hurting RevPAR.

Earnings Whispers

Our proven model does not conclusively show that Marriott International is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Marriott International has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 84 cents.

Zacks Rank: Marriott International’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the broader consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Boyd Gaming Corporation (BYD - Free Report) , with an Earnings ESP of +12.00% and a Zacks Rank #1.

AMC Entertainment Holdings, Inc. (AMC - Free Report) , with an Earnings ESP of +5.56% and a Zacks Rank #3.

Royal Caribbean Cruises Ltd. (RCL - Free Report) , with an Earnings ESP of +6.45% and a Zacks Rank #2.

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