Marriot Remains Neutral – Analyst Blog

We maintain our Neutral recommendation on Marriott International Inc. (MAR) a leading worldwide hospitality company, primarily focusing on property management and franchising.

 

Marriott reported first quarter 2010 earnings of 22 cents, ahead of the Zacks Consensus Estimate of 20 cents. Results reflected higher-than-expected revenues as a result of the recovery in business travel. Leisure demand also remained solid. Marriott’s total revenue was $2.6 billion, up 5% year over year.

 

For the second quarter, Marriott expects earnings of 25 cents to 29 cents per share on fee revenues of $275 million to $285 million. The current Zacks Consensus Estimate for the second quarter is 28 cents. Comparable system-wide RevPAR on a constant dollar basis is expected to increase 4% to 6% in North America and 8% to 10% outside North America.

 

For full year 2010, the company anticipates earnings to range within 95 cents – $1.05 per share and fee revenues ranging from $1.15 billion to $1.18 billion. The Zacks Consensus Estimate for fiscal 2010 is $1.04. Comparable system-wide RevPAR on a constant dollar basis is anticipated to increase 3% to 6% in North America and 4% to 7% outside North America.

 

Marriott has a substantial development pipeline and is poised to benefit from the increase in demand for hotels, going forward. The demand for hotel and the pace of recovery in the international market are greater than that in the U.S and Marriott should benefit from its international exposure.

 

Marriott plans to double its number of properties in China and Europe by 2015. The expansion in Europe and China is a strategic fit, given the slow recovery of the U.S. hotel industry.

 

Marriott’s balance sheet is strong. The company reduced its debt by roughly $800 million in 2009 and expects to reduce debt by another $400 million to $500 million by year end 2010.

 

However, considering the sluggish recovery of the economy, we expect the top line improvement to be slow. Additionally, overall pricing still remains weak, which in turn would restrict margin improvement in the near term. The competition in the industry is increasing and Marriott’s hotel brands compete with major hotel chains in national and international venues and with other independent hotels in regional markets.