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Should You Hold Marriott for Long-Term Gains Despite Risks?

MAR RLH CHH SNOW

Trades from $3

On Nov 29, Zacks Investment Research upgraded Marriott International Inc. (MAR - Free Report) by a notch to a Zacks Rank #3 (Hold).

The company posted mixed third-quarter 2016 results on Nov 7. Though earnings surpassed the Zacks Consensus Estimate, revenues failed to beat the same.

We note that on Sep 23, Marriot become the world's largest hotel company after completing its acquisition of Starwood Hotels & Resorts Worldwide Inc.

MARRIOTT INTL-A Price and Consensus

 

MARRIOTT INTL-A Price and Consensus | MARRIOTT INTL-A Quote

Moreover, with economic boost and an improvement in business and leisure travel, Marriott is well poised to grow in the near as well as longer term.

Apart from focusing on the lucrative domestic market, Marriott is consistently striving to expand its international footprint, especially in Asia, Europe, Latin America, Latin America, Middle East and Africa.

The acquisition of Starwood also bodes well in this regard as Marriott's distribution has more than doubled in Asia and the Middle East & Africa combined. Also, the merger is expected to result in a bigger brand with increased scale and a robust development pipeline in the long run.

Further, Marriott is significantly investing in technology for hotel bookings, in order to improve guest experience, which in turn should boost occupancy.

Additionally, the company is working to provide a more rewarding experience for guests. Post its acquisition of Starwood, Marriott linked industry-leading guest loyalty programs – Marriott Rewards, Ritz-Carlton Rewards, and Starwood Preferred Guest – and announced the matching of member status between these. The company believes that the linking of the three loyalty programs would lead to an even larger loyalty community.

Moreover, frequent share buybacks and continuous increase in quarterly dividend payments further affirm the company’s optimistic outlook and growth prospects.

However, macroeconomic concerns in several emerging economies might spell trouble for Marriott. Particularly, the slowdown in the Chinese economy is hurting discretionary spending and, in turn, travel. Also, in Europe, economic/political conditions are expected to be challenging after the U.K.’s exit from the 28-member economic bloc.

Meanwhile, soft demand in the oil producing regions is expected to continue hurting RevPAR. In fact, taking into account the impact of a weaker global macro outlook, Marriott lowered its comparable system-wide RevPAR expectations on a constant dollar basis to growth of 3% in North America, outside North America and worldwide for full-year 2016. Notably, the company had earlier guided for RevPAR growth of 3% to 5%.

Also, Marriott is highly vulnerable to fluctuations in exchange rates, given its significant international presence.

Other Stocks to Consider

Better-ranked stocks in the sector include Choice Hotels International Inc. (CHH - Free Report) , Red Lion Hotels Corporation (RLH - Free Report) and Intrawest Resorts Holdings, Inc. (SNOW - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Choice Hotels earnings surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 2.67%. Further, for 2016, EPS is expected to grow 9.8%.

The Zacks Consensus Estimate for Red Lion Hotels’ 2016 earnings has narrowed from a loss of 23 cents per share to a loss of 20 cents, over the last 60 days. Further, EPS is expected to grow 48.7%.

Intrawest Resorts’ trailing four-quarter average earnings surprise is a positive 2.20%. The Zacks Consensus Estimate for Intrawest Resorts’ fiscal 2017 earnings moved up 3.3% over the last 60 days.

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