Marriott International Inc. (MAR), a leading worldwide hospitality company, posted  better-than-expected second quarter results on July 14, 2010, buoyed by RevPAR growth, which was  particularly in North America and an improvement in lodging industry, prompting management to raise the outlook  for fiscal 2010. The recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for both the short-term and the long-term outlook for the stock are covered in depth below.
 
Earnings Report Review

During the second quarter of 2010, Marriott reported earnings of 31 cents per share, surpassing the Zacks Consensus Estimate by 3 cents. Earnings were also well above the company’s guidance of $0.25 to $0.29 per share and soared 35% year over year. Total revenue upped 7.7% year over year to $2.8 billion.
 
Higher-than-expected revenue per available room (RevPAR) and average daily room-rate at company-operated hotels in North America, which were up for the first time in nearly two years, drove the earnings. The results also indicate a turnaround in business as well as leisure travels, both of which remained solid in the quarter. Marriott also experienced an increase in its occupancy levels.
 
(Read our full coverage on this earnings report: Marriott Beats, Outlook Positive)

Earnings Estimate Revisions: Overview

Following the earnings release, the Zacks Consensus Estimate for the company has been on the rise, with the analysts remaining bullish on the stock. The strong earnings and revenue outlook for fiscal 2010 bolstered the analysts’ confidence. The earnings estimate details are discussed below.
 
 Agreement of Estimate Revisions
 
From the table below, a positive inclination can be witnessed among the analysts, who mostly remain bullish on Marriott’s optimistic outlook. Revision trends in the last 30 days drifted toward the positive side. For fiscal 2010, 15 out of 18 analysts covering the stock raised their estimates and for fiscal 2011, 11 out of 18 analysts have increased their estimates. 
 
The analysts have increased their estimates based on strong second quarter results and higher incentive fees and profits in the timeshare and owned/leased hotel segments. Management raised its fiscal year guidance as it remains optimistic about the lodging industry based on the improving corporate and group demand trends and favorable rates. Moreover, the analysts expect margin expansion to continue as the company stringently controls its expenses and the addition of new rooms in 2010 will benefit earnings.
 
 Magnitude of Estimate Revisions

The table below indicates that earnings estimates remained unchanged for fiscal 2010 and fell by 2 cents to $1.32 for fiscal 2011, over the last 30 days. The magnitude of estimate revisions indicates that the Zacks Consensus Estimate has been on the rise since the earnings release. In the last 7 days, the Zacks Consensus Estimate for fiscal 2010 climbed 7 cents to $1.11 and increased 5 cents to $1.37 for fiscal 2011. The fiscal 2011 estimate has been further pushed up by 1 cent and is currently expected at $1.38. The analysts expect the company to resume share buyback in 2011, as Marriott does not plan to repurchase any additional shares in 2010.
 
 Our Recommendation
 
We remain positive on Marriott as the company has a substantial development pipeline, and is poised to benefit from the surge in demand for hotels, going forward. The 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. China is becoming particularly important to the company’s international development as Marriott plans to double its number of properties in China by 2015, making it the second-largest market in terms of the number of hotels.
 
The company has a solid balance sheet and plans to reduce its debt further in fiscal 2010 along with no balance on its bank revolver. Additionally, lower operating cost structure, favorable pricing, a larger platform with more rooms and increased market share also augur well. In the recent months, the entire industry has started showing signs of RevPAR improvement and considering the reviving lodging industry and increasing occupancy rate, we expect the top-line improvement to gain momentum, going forward.
 
Accordingly, we maintain a Zacks #1 Rank, which translates into a short-term Strong Buy recommendation. Our long-term recommendation for the stock remains Outperform.

Read the full analyst report on “MAR”
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