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Marriott (MAR) Strategic Efforts to Aid Long-Term Growth

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Marriott International, Inc. (MAR - Free Report) is likely to benefit from improving North America business, solid brand position, sizeable international exposure and loyalty program. As a result, the stock has gained 6.4% in a month, outperforming the industry’s 3.7% growth. However, the company’s dismal top-line performances over the past three quarters have been concerning. Let’s delve deeper.

Factors Driving Growth

Marriott continues to impress investors with its solid bottom-line performance. In third-quarter 2018, the company’s adjusted earnings of $1.70 per share surpassed the Zacks Consensus Estimate of $1.31 and increased 62% year over year. Notably, Marriott’s earnings have topped the consensus mark for the 17 straight quarters. As a result, the company raised its 2018 earnings view. Currently, it anticipates the metric in the band of $6.15-$6.18 per share, up from $5.81-$5.91 estimated earlier. Earnings estimates for the current year have been revised 5.1% upward over the past 30 days.

RevPAR in North America rose 3% in the third quarter. Given a steady rise in business and leisure travel, and higher transaction volumes, Marriott is well-poised to grow in the near as well as long term. With global travel estimated to witness a CAGR of 7% over the next 10 years and international trips are anticipated to top 1.8 billion by 2030.

Moreover, Marriott is consistently trying to expand its presence worldwide and capitalize on the demand for hotels in international markets. Moving ahead, the company plans to significantly expand its global portfolio of luxury and lifestyle brands. For 2018, Marriott anticipates 7% net room growth, which is likely to continue building economics, scale, and consumer preference for its brands.

Earlier, Marriott 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. Additionally, it will offer members more than what was promised by the prior programs. Notably, the company’s total loyalty membership has increased to 120 million.

Starting 2019, Marriott will implement a fresh program services fee structure for owners, which will help the company to manage cost for programs and services.

Concerns

Marriott’s lower-than-expected top-line performance over the past three quarters have disappointed investors. The company’s revenues missed the Zacks Consensus Estimate in the first, second and third quarter of 2018. In the second quarter, total revenues came in at $5.05 billion, which fell short of the consensus mark of $5.37 billion and declined 0.6% from the year-ago quarter figure.

Meanwhile, in the domestic market, the company is facing competition in New York due to a continuous increase in supply of hotels, which is limiting room rents, thereby hurting RevPAR in the region. On the whole, although leisure demand remains strong, cautious corporate, group and transient demand raises concern.

Marriott, which shares space with Choice Hotels International, Inc. (CHH - Free Report) , has a Zacks Rank #3 (Hold).

Key Picks

Better-ranked stocks worth considering in the same space include Belmond Ltd. and Peak Resorts, Inc. , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Belmond and Peak Resorts current-year earnings are expected to grow by 150% and 342.9%, respectively.

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