Marriott (MAR) Rides On Starwood Buyout & Solid Expansion

Marriott International, Inc. (NASDAQ:MAR) is poised to grow in the near as well as long term, given a steady rise in business and leisure travel.

Last week, the company posted better-than-expected third-quarter 2017 results wherein both the bottom and top lines outpaced the Zacks Consensus Estimate. Meanwhile, for 2017, Marriott anticipates earnings in the band of $4.22 to $4.24 per share, up from the earlier guided range of $4.06 to $4.18.

We note that after the acquisition of Starwood Hotels & Resorts on Sep 23, 2016, Marriott has become the world’s largest hotel company. Currently, it has more than 6,400 properties across 126 countries and territories, under 30 brand names.

Post-acquisition of Starwood, shares of the company have surged 75.9% while the broader S&P 500 index gained 19%. After sorting out its integration challenges, Marriott’s shares are well poised to continue growing, as and when positive synergies are realized.

Additionally, this Zacks Rank #2 (Buy) company continues to reflect strength in several areas. Therefore, it is expected to continue performing well in the quarters ahead. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Growth Drivers

Attractive Brand Position, Acquisitions to Drive Growth: Marriott’s extensive portfolio and a strong brand position allow it to charge a premium room rate in the highly competitive lodging industry. Given its property locations, we believe that the company is well-poised to benefit from the increasing market demand backed by stepped-up business as well as leisure traveling in major North American and international locations.

Meanwhile, with the completion of the Starwood acquisition, Marriott's distribution has more than doubled in Asia and the Middle East & Africa combined. In fact, the buyout is likely to result in a bigger brand with increased scale and a robust development pipeline in the long run.

Interestingly, even with 30 brands under portfolio, the company has not ruled out further M&A activities. It holds about 14-15% market share in the United States and therefore has further room to grow.

Robust Expansion Plans: In addition to domestic markets, Marriott is consistently trying to expand its presence worldwide and capitalize on the demand for hotels in international markets. Going forward, the company plans to significantly grow its global portfolio of luxury and lifestyle brands. Also, it anticipates gross room additions of 7% in 2018 that is likely to continue building economics, scale and consumer preference for its brands.

Outside the United States, the hotel giant is trying to expand its footprint, especially in Asia, Latin America, Middle East and Africa. In fact, Marriott’s European pipeline has grown consistently in the recent past and is expected to continue, going forward.

Within Asia-Pacific, China promises immense growth potential despite the economic slowdown. In fact, in August 2017, the company entered into a joint venture agreement with Alibaba (NYSE:BABA) to develop a travel storefront that leverage the latter’s digital travel platform, retail expertise and digital payment platform, Alipay.

Notably, China is the largest source market for outbound travel now. In fact, Chinese outbound travel is set to boom further with 700 million trips projected over the next five years. As a result, Marriott expects this new joint venture to aid in capturing a greater share of this growing Chinese travel market, increase membership of its loyalty programs and reduce distribution costs. Apart from China, the company continues to focus on other Asian countries like India, Indonesia, Thailand and Australia for further expansion.

We expect the company’s continuous expansion plans to add immensely to the top line and boost its overall performance as well.

Embracing Social Media and Smartphones to Build Loyalty: Digital innovations and social media have already started playing an important role in hotel bookings. Marriott too has rolled out guestVoice to measure guest feedback, introduced SPG Mobile check-in and check-out in North America, and achieved procurement and OTA cost savings.

Additionally, post its acquisition of Starwood, Marriott has linked industry-leading guest loyalty programs — Marriott Rewards, Ritz-Carlton Rewards and Starwood Preferred Guest — and announced the matching of member status between the programs, thereby leading to an even larger loyalty community. In fact, the company aims to merge its loyalty programs into one by 2018.

These investments in technology for hotel bookings are likely to improve guest experience and thus boost occupancy.

Bottom Line

Does this mean that the company has been lying on a bed of roses? Well, not really!

Lingering political uncertainties in key international markets along with currency headwinds remain concerns for Marriott and most of the other hotel chains including Hyatt Hotels Corporation (NYSE:H) , Hilton Worldwide Holdings (NYSE:H) and Wyndham Worldwide Corporation (NYSE:WYN) .

Still, we believe that the company’s unmatched portfolio of lodging brands, strong global footprint along with an increased demand for travel will pave the way for its growth, going forward.

Over the last 30 days, the Zacks Consensus Estimate for Royal Caribbean’s current year’s earnings has moved up 2.4%, reflecting nine upward revisions versus none downwards. Also, next year’s earnings estimates have inched up 2.1% on the back of nine upward revisions versus no downward revision.

All these positive earnings estimate revisions testifies the unwavering confidence that analysts have in the company and further adds to the optimism in the stock.

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