Marriott International Inc. (MAR, Financial) is a $16.86 billion market cap company that operates more than 3,500 hotels and 600,000 rooms in more than 50 countries.
New hotel brands
The company has a strong cash flow driven by its 90% franchised or managed hotels, with which the hotels signed long-term contracts, for durations of about 20 to 30 years. Two things are primary for the company. It plans to expand room as well as revenue share in the next decade. This could be reached by the positive next-generation traveler position with renovated and updated brands. Moreover, the industry-leading loyalty program should boost the metrics, too. For next year, the firm is expecting over 18 brands with over 5,000 hotels. In 2000, there were 10 brands with 2,100 hotels, and now there are about 18 brands with 4,100 hotels. At the end of the first trimester, there was an increase to more than 275,000 rooms, but almost 10% are not yet subject to contracts.
International presence
At the end of 2014, the company's overseas operations were driven by 237 properties. There were about 44,500 rooms or suites in Europe more than 53,000 in Asia and more than 24,000 in the Middle East or Africa. This is the route to expand its customer base further while gaining market share abroad to continue to contribute to cash flows.
Marriott added more than 10,000 rooms in the first quarter of 2016. From those, 1,500 rooms were converted from competitor brands and 3,300 were in international markets.
Some key numbers from the first quarter
In the first quarter, adjusted net income reached $226 million, a 9% increase when compared to 2015's first-quarter net income. Adjusted diluted earnings per share reached 87 cents, a 19% increase over prior-year results. Net income totaled $219 million compared to $207 million in the year-ago quarter. Reported diluted EPS was 85 cents compared to 73 cents in the first quarter of the prior year. Further, the adjusted net income and adjusted diluted EPS exclude $10 million of related costs of the Starwood (HOT, Financial) acquisition. At the end of February, the company projected first-quarter diluted EPS in the range of 81 cents to 85 cents. These figures don’t include transaction costs related to that acquisition.
Ratings and stock price performance
The stock's performance on a year-to-date basis is negative 1.09% but in the 12 past months, the stock has done well with a return of 15%. Yahoo! (YHOO, Financial) Finance estimates a one-year target share price at $76.05. Also, investors will be paid a dividend of $1.2 at the end of the year, yielding 1.8%. The company declares dividends of 30 cents per share quarterly, a 20% increase from prior dividend of 25 cents. Dividends have been paid since 1926 and during the past 13 years, the highest trailing annual dividend yield of Marriott International was 2.92%, the lowest was 0.11%, and the median was 1.03%. The actual stock dividend yield is close to a five-year high.
According to Marketbeat the one-year target price is $77.86 with 17.5% upside potential. Analysts at Bank of America (BAC, Financial) have reiterated their “buy” rating but lowered the price objective to $75 from $76.
Relative valuation
Regarding valuation, the stock sells at a trailing P/E of 20.29x, trading at a discount compared to an average of 21.9x for the industry, and it is close to a five-year low of 18.73x. To use another metric, its price-to-sales ratio of 1.20x is below the industry average of 1.77x and it is close to a two-year low of 1.13x.
Final comment
Although the hotel industry is facing intense competition, we believe that the world with higher demand due to an increase in consumer´s income will benefit the company. Marriott is achieving healthy growth and is also going to achieve growth in the next couple of years.
The acquisition of Starwood will be close by mid-2016, by the time I feel bullish on this stock.
While Arnold Schneider (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) sold out the stock, PRIMECAP Management (Trades, Portfolio) has boosted its position by 150%. Other gurus like Ken Fisher (Trades, Portfolio), Tom Gayner (Trades, Portfolio), and Spiros Segalas (Trades, Portfolio) have increased their portions as well.
Disclosure: Omar Venerio holds no position in any stocks mentioned
