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Marriott Looks Potentially Lucrative: May Boost Returns to Investors

March 30, 2014 | About:
abirk

abirk

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In this fast moving world, the life of people has become very busy and therefore leisure companies play a great role. Be it for a holiday trip or a business trip, these companies always try to rejuvenate and refresh peoples' minds. Marriott International Inc. (MAR) is at the top of the lodging industry, and develops new concepts that will give immense pleasure to its valued customers.

This Bethesda, Maryland-based company is the largest publicly traded hotel chain after Hilton Worldwide Holdings Inc. (HLT), with some 3,700 operated or franchised properties worldwide. Its hotels include such full-service brands as Renaissance Hotels and its flagship Marriott Hotels & Resorts, as well as select-service and extended-stay brands Courtyard and Fairfield Inn. It also owns the Ritz-Carlton luxury chain and resort, and manages about 45 golf courses. This world's leading hotelier has invested more than $15 billion by owners and franchisees, and expects $6 billion will be invested in 75 hotels due to open in the next two years.

Tracking the Performance

On February 19, 2014, this leading worldwide hospitality company reported fourth quarter 2013 revenues of $3.2 billion, compared to revenues of over $3.7 billion for the same quarter a year ago. Base management and franchise fees totaled $315 million compared to $369 million in the year-ago quarter. The company estimates that the change in the fiscal calendar resulted in approximately $72 million of lower fees year-over-year. The calendar change impact was partially offset by higher RevPAR (revenue per available room) and non-room sales at existing hotels, as well as fees from new hotels. For the 2013 fourth quarter, RevPAR for worldwide comparable system wide properties increased 4.3% (a 4.1% increase using actual dollars). Further, a chart has been provided below to show company’s other performances.

The company estimates that decrease relates to the change in the fiscal calendar. General, administrative and other expenses for the recent quarter totaled $200 million, which is more than estimated cost of $170 million to $175 million.

For the full year 2013, 39% of worldwide company-managed hotels earned incentive management fees compared to 33%in the year-ago quarter. Full year 2013 net income totaled $626 million compared to $571 million for full year 2012, and diluted earnings per share (EPS) totaled $2.00 compared to $1.72 in 2012. During 2013, the company returned over $1 billion to its shareholders through dividends and share repurchases.

Marriott added 47 new properties (7,681 rooms) to its worldwide lodging portfolio in the 2013 fourth quarter, including The Ritz-Carlton Almaty in Kazakhstan, the JW Marriott Hotel Hanoi and the Hotel Am Steinplatz, an Autograph Collection hotel in Berlin.

What’s Next

For 2014, Marriott expects comparable system wide RevPAR on a constant dollar basis will increase 4 to 6% in North America, 3 to 5% outside North America. The company assumes full year fee revenue could total $1,650 million to $1,700 million, a growth of 7 to 10% over 2013 fee revenue of $1,543 million. For 2014, the company anticipates general, administrative and other expenses will total $640 million to $650 million, flat to down 2% compared to 2013 expenses of $651 million, excluding depreciation and amortization. Further, Marriott expects to return an additional $1.25 billion to $1.5 billion to our shareholders. Given these assumptions, 2014 diluted EPS could total $2.29 to $2.45, a 15 to 23 percent increase year-over-year. The following chart provides Marriot’s 2014 international outlook.

Playing Strategically

This global hotel chain sees huge development opportunities in Australia — one of the world’s wealthiest countries. Therefore, it has signed an agreement with Fast Consortium, a leading Asian residential apartment developer, to develop a project which includes a Ritz-Carlton branded hotel and residential apartments in Elizabeth Quay, Perth.

With the acquisition of Protea Hospitality Holdings, Marriott will expand its wings in Nigeria. Further, the company has announced to open five Moxy Hotels in major European cities by the end of 2015. The hotels will be opened in Munich, Berlin and Frankfurt, Germany, as well as Oslo, Norway. Marriott International also plans to sign 13 Moxy hotel deals in Europe by the end of 2014. Marriott mobile also leads the industry with a projected 2013 mobile sales of $1.3 billion.

Competitive Advantage

Marriott enjoys a competitive advantage over Hilton, Starwood Hotels & Resorts Worldwide Inc. (HOT), and Hyatt Hotels Corporation (H) because of its experience and culture, leading brand portfolio, broad and growing distribution, stable revenue streams, owner and lender preference, and best-in-class management team. Further, in terms of return in terms of invested capital, Marriott is better than its peers which have been shown in the following chart.

Company’s Growth

Marriott’s favorable industry supply and accelerating rooms’ growth have been provided in the following chart.

On a Concluding Note

Marriott’s strengths can be seen in multiple areas such as leading brand platforms, brand extensions, low volatility, great lodging deal production, industry’s most preferred loyalty programs, industry –leading margins, diluted earnings per share from continuing operations, and cumulative capital allocation. Further, this leading worldwide hospitality company has a significant global opportunity which has been shown in the following chart.

Charts from company website

Additionally, Marriott has signed contracts with owners and franchisees for 67,000 new rooms, and its development pipeline reached a record 195,000 rooms. Over the last three years, the company has returned over $3.9 billion to its shareholders through share repurchases and dividends and reduced its average fully diluted shares by 17%. I am therefore pretty bullish that this company has a great investment opportunity in the long run.


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