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Bull of the Day: Marriott International (MAR)

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Marriott International MAR reported impressive Q1 2022 results last week, with earnings and revenues surpassing the Zacks Consensus Estimates.

This is an important company to look at for two big reasons right now...

1) According to research from the World Travel & Tourism Council (WTTC) and Oxford Economics in February, its latest economic modeling projected that U.S. Travel & Tourism could rebound strongly this year, reaching almost $2 trillion in U.S. GDP contribution and exceeding pre-pandemic levels by 6.2%.

Specifically, the report highlighted that U.S. domestic Travel & Tourism spending is forecast to reach more than $1.1 trillion for the year, surpassing pre-pandemic levels by 11.3%. Ironically, this $1.1T number is the value that was lost in 2020.

2) Despite raging inflation ravaging the stock market and threatening recession, this steady earner could be the safe harbor in a storm. Let's look at the fundamentals and make that determination.

Marriott Quarter Discussion

The bottom line outpaced the consensus mark for the seventh straight quarter, while the top line beat the same for the fourth consecutive quarter. Following the results, the company’s shares are up 2.9% in the pre-market trading session.

During the quarter, the company witnessed solid demand in the United States, Canada, the Middle East and Africa region. Marriott benefited from robust leisure demand and improvements in business and cross-border travel.

Although the Omicron variant had affected business transient demand in January, demand is stated to have picked up in March. With global trends improving, the company expects the recovery momentum to continue in the upcoming periods as well.

At the end of Q1 2022, Marriott's development pipeline totaled nearly 2,878 hotels, with approximately 489,000 rooms. Nearly 201,400 rooms were under construction.

Impressively, during the quarter the company added 75 new properties (11,799 rooms) to its worldwide lodging portfolio.

Earnings & Revenue Details

In the quarter under review, Marriott’s adjusted earnings per share (EPS) were $1.25, surpassing the Zacks Consensus Estimate of 95 cents. In the prior-year quarter, the company had reported adjusted earnings of 10 cents per share

Quarterly revenues of $4,199 million surpassed the consensus mark of $4,172 million. The top line surged 81.3% on a year-over-year basis. During the quarter, revenues from Base management and Franchise fee came in at $213 million and $500 million compared with $106 million and $306 million reported in the prior-year quarter.

RevPAR & Margins

In the quarter under review, RevPAR for worldwide comparable system-wide properties fell 19.4% (in constant dollars) compared with 2019 levels. The downside was primarily driven by a fall in occupancy (13.6% from 2019 levels). However, the average daily rate (ADR) increased 0.8% from 2019 levels.

RevPAR, or revenue per available room, is a performance metric in the hotel industry that is calculated by dividing a hotel's total guestroom revenue by the room count and the number of days in the period being measured.

Comparable system-wide RevPAR in Asia Pacific (excluding China) fell 48.4% (in constant dollars) from 2019 levels. Occupancy and ADR declined 26.1% and 18.6%, respectively, from 2019 levels. Comparable system-wide RevPAR in Greater China fell 41.9% from 2019 levels.

On a constant-dollar basis, international comparable system-wide RevPAR fell 31.7% compared with 2019 levels. Occupancy and ADR declined 19.8% and 2.4%, respectively, from 2019 levels. Comparable system-wide RevPAR in Europe and the Caribbean & Latin America declined 37.9% and 13.5%, respectively, from 2019 levels.

Total expenses during the quarter increased 63.1% year over year to $ 3,641 million, primarily owing to a rise in Reimbursed expenses.

During the first quarter, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to $759 million compared with $296 million reported in the prior-year quarter.

After this strong report card and outlook, analyst consensus numbers climbed on the top and bottom lines with revenues for this year projected to hit nearly $20 billion, representing 43% annual growth. And EPS launched up to $5.90, for an 85% expected advance.

Stagflation Spiral?

Given these strong numbers and a stock trading at a discount to its fundamental value, I think the case can be made for buying MAR near $160. But let's look at the brewing crisis that has flared up since the optimistic forecasts of a big travel and tourism rebound were made early this year.

Here's what I wrote to my members last week...

TAZR Traders

Tonight we'll look at the market's greatest fear: a stagflationary shock where credit contracts sharply and recession becomes a self-fulfilling prophecy.

As I discussed on April 27, Tech Stocks Are Acting Like a Recession Has Started.

Wednesday, Jeffrey Rosenberg of BlackRock published a lengthy research note titled "A Stagflationary Shock" which depicts an even grimmer picture that prompts me to raise my recession probability to 35%.

This view is simply based on the self-fulfilling dynamic of contractions. Fear begets fear, which lead to contractions in investment and spending, and we're seeing it flare up in credit spreads and Bitcoin too.

This becomes one of the worst environments for stocks as they are sold wholesale to get capital out of the way -- even if the recession probability never rises above 40%.

Here were Rosenberg's Key Points...

1. A stagflationary shock

The Russian invasion of Ukraine may spell higher prices and lower growth for the global economy—increasing downside risks to markets and heightening central bank policy uncertainty.

2. The vaccination for inflation?

Central banks have prescribed a regiment of rate increases and the end of QE to stop the spread of inflation, but the dosage may not be adequate to protect against its many variants.

3. Expanding return sources

Rising political tensions make the Fed’s fight with inflation even more tenuous. New sources of diversification and return may be needed as inflation undermines the traditional diversifying properties of bonds.

And he further opined on the impact of the Russian invasion of Ukraine...

"The economic and financial impact of the Russian invasion of Ukraine represents a stagflationary shock for the global economy. The prices of commodities, including fuel, food and metals are all surging. Stagflation, an economic environment of stagnant growth and rising inflation, was once a long-tail risk, but now appears to be a real possibility."

If you like macro, the full piece on Advisor Perspectives is worth your time, with many charts of commodity prices, global bond rates, inflation rates, consumer finances, and a comparative study of "company pricing power and cost of workers."

Bottom line on Marriott: Consumers are itching to catch a flight to just about anywhere and, while the current downdraft in stock market wealth may trim some appetites, the forecast for a surge in travel & tourism that exceeds 2019 is probably well intact. MAR is a good way to play it from these levels.

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