We maintain our Neutral recommendation on Marriott International Inc. (MAR - Free Report) . While the company’s strong performance in fourth-quarter 2012, solid developmental pipeline, resurgence in North America and cost saving initiatives are positives, slowdown in some markets, lingering concerns and tough year-over-year comparisons in Europe keep us on the sidelines at the current level.
Why the Reiteration?
Marriot’s fourth-quarter 2012 adjusted earnings and revenues were ahead of the Zacks Consensus Estimate and the year-ago results. Marriott has a substantial development pipeline and is poised to benefit from the increase in demand for hotels, going forward. The lodging industry in North America is in a revival mode. The company expects to open 90,000 to 105,000 rooms between 2012 and 2014. Marriott expects 2013 to be favorable due to continued strong demand and pricing.
Marriott is stringently controlling its expenses. It has reduced centralized cost allocations and staff expenses by adjusting employee hours and delaying recruitments. It is focused on enhancing its property-level house profit margins by modifying menus and restaurant hours, besides reviewing and adjusting room amenities. As a result, the company’s expenses are likely to reduce significantly in the forthcoming quarters.
However, weak economic conditions in Europe and slowdown in China continue to be headwinds. Room rate per available room rate growth in Europe will remain sluggish in 2013 as a result of the dismal economic conditions and tough year-over-year comparisons due to the 2012 Olympics in London, the Euro Cup Championship and a strong fair schedule in Germany.
Moreover, management is not very hopeful even on manufacturing markets such as Guangzhou and Shenzhen in China and urban markets like Mumbai in India, which are witnessing weaker demand.
Hence, at the current level, we remain cautious and prefer to take a wait and see approach till we find some more evidence of an outperformance.
Marriot currently retains a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some other hotel industry stocks currently performing well include Choice Hotels International Inc. (CHH - Free Report) , Home Inns & Hotels Management Inc. and Marriott Vacations Worldwide Corp. (VAC - Free Report) . While Home Inns holds a Zacks Rank #1 (Strong Buy), Choice Hotels and Marriott Vacations retain a Zacks Rank #2 (Buy).