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Marriott (MAR) Strategic Plans Bode Well: Should You Hold?

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Marriott International, Inc.’s (MAR - Free Report) solid brand position, sizeable international exposure, Starwood acquisition and rising demands for hotels in international markets are likely to boost its quarterly performance.  
In a year’s time, the stock has gained 21.4% compared with the industry’s 3.1% growth. However, the company’s lower-than-expected top-line performances over the past two quarters have been a cause for concern.

Key Catalysts

Marriott continues to impress investors with its impressive bottom-line performance. In second-quarter 2018, the company’s adjusted earnings per share came in at $1.73, which surpassed the Zacks Consensus Estimate of $1.36 and increased 56% year over year. Notably, Marriott’s earnings have topped the consensus mark for the 16 straight quarters. Strong RevPAR gains and room growth drove the company’s results.

As a result, Marriott raised its 2018 earnings view. It anticipates the metric to be in the band of $5.81-$5.91 per share, up from $5.43-$5.55 projected earlier.

Marriott’s consistent efforts to expand its presence worldwide and capitalize on the demand for hotels in international markets are also encouraging. Moving ahead, the company plans to significantly expand its global portfolio of luxury and lifestyle brands. For 2018, it anticipates 5% gross room additions, which are likely to continue building economics, scale, and consumer preference for Marriott’s brands. The hotel company is also trying to expand its footprint outside the United States, especially in Asia, Latin America, Middle East and Africa.

Meanwhile, the company’s European pipeline has grown consistently in the recent past and is expected to continue, going forward. In fact, Marriott aims to expand its lead in the luxury and full-service segments in the region, have the largest portfolio in the upscale division and also win over millennials in the affordable lifestyle group by 2020.

Marriott International Price, Consensus and EPS Surprise

On the international front, the company continues to rely on acquisitions in order to expand its footprint. In 2016, it completed the acquisition of Starwood and became the world's largest hotel company. With the completion of this acquisition, Marriott's distribution has more than doubled in Asia and the Middle East & Africa combined. The company said that they had made great progress in integration of Starwood.

Digital innovations and social media are starting to play an increasingly important role in hotel bookings. Social media enhances the brand’s prospects by connecting directly with guests, which in turn can lead to increased loyalty and market share. In this regard, the Marriott mobile app for tablets and smartphones looks promising. The application helps guests to manage their bookings, access interactive maps/GPS as well as reward programs.

Earlier, Marriott had announced its plans to unify its loyalty program benefits across Marriott Rewards, The Ritz-Carlton Rewards and Starwood Preferred Guest (SPG) in August. The combined loyalty program is expected to provide richer perks to the company’s loyalty members by enabling them to earn roughly 20% points for every dollar spent. Also, the program will enrich members with more than what was offered under the prior programs. Under this global loyalty program, members can book stays, and earn or redeem points across 29 brands covering 6,500 hotels in 127 countries and territories.

Concerns

Marriott’s lower-than-expected top-line performance over the past two quarters have disappointed investors. The company’s revenues missed the Zacks Consensus Estimate in the first and second quarter of 2018. In the second quarter, total revenues came in at $5,346 million, which missed the consensus mark of $5,978 million.

Additionally, in New York, the company is facing competition in domestic markets due to a continuous increase in supply of hotels, which is limiting room rents and hurting RevPAR in the region. On the whole, though leisure demand remains strong, cautious corporate, group and transient demand raise concern. Further, despite immense growth potential, a sluggish economy and oversupply in Brazil are weighing on the Latin American region.

Marriott, which shares space with Extended Stay America, Inc. (STAY - Free Report) , carries a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks in the same space are Hyatt Hotels Corporation (H - Free Report) and Wyndham Destinations, Inc. (WYND - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hyatt Hotels has a long-term earnings growth rate of 10%.

Wyndham Destinations has reported better-than-expected earnings in each of the trailing four quarters, with an average beat of 5.2%.

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