We are maintaining our long-term Neutral recommendation for Marriott International Inc. (MAR), a worldwide operator and franchisor of a broad portfolio of hotels and related lodging facilities. Given the company’s strong pipeline, significant international exposure, solid balance sheet, lower operating cost structure, favorable pricing and increased market share, we believe it is one of the leading worldwide hospitality companies with a positive long-term outlook.
As the leisure environment is improving, the Maryland-based company expects RevPAR to grow at compound annual rates of 5–9% over the next three years, earnings to reach $1.90–$2.75 per share, adjusted EBITDA in the range of $1.54 billion to 1.94 billion, and total revenue between $4.24 billion and 4.68 billion by 2013. The company also anticipates that incentive management fees will nearly double and reach $285–$440 million by 2013. In addition, the company forecasts total fees of $1.57 billion to $1.87 billion by 2013.
Marriott’s balance sheet position is strong and its adjusted net debt has lowered by roughly $1.5 billion since the end of 2008. Thus the company has reached its targeted debt level and plans to use excess fund for investment in business and enhancing shareholder value. The company plans to invest $2.3 billion to $2.7 billion over the next three years and expects to return between $3.3 billion and $5.3 billion to shareholders from 2011 to 2013 through dividends and share repurchases. In November, the company also raised its quarterly dividend by 4 cents to 8.75 cents per share and share repurchase authorization to 25 million.
Marriott also has a substantial development pipeline and expects to add at least 80,000 to 90,000 hotel rooms to its portfolio from 2011 to 2013 with additional opportunities for 22,000 rooms to open in Europe and Asia during the same period. Additionally, demand for hotel and the pace of recovery in the international market are greater than in the U.S. and Marriott should benefit from its international exposure. The company plans to double its properties in China and Europe and triple in India by 2015. The supply growth is also moderating, which should help to raise the room prices higher.
However, economic recovery remains slow as room rates have not increased significantly and bookings remain disproportionate. Group rates were down 2% in the third quarter of 2010 as much of the business was booked during the downturn. Thus, pricing for the business group still remains challenging. The company also faces competition from major hotel chains like Intercontinental Hotels Group plc (IHG) and Starwood Hotels & Resorts Worldwide Inc. (HOT) in national and international venues and with other independent companies in regional markets. Hence, we remain Neutral on the stock.
STARWOOD HOTELS (HOT): Free Stock Analysis Report
INTERCONTL HTLS (IHG): Free Stock Analysis Report
MARRIOTT INTL-A (MAR): Free Stock Analysis Report
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