Marriott International, Inc.’s MAR acquisition of Starwood Hotels & Resorts on Sep 23, 2016, has made it the world’s largest hotel company, spanning across 122 countries with over 6,000 properties. Shares of the company have gained nearly 27% since the date of takeover while the S&P 500 Index has witnessed an increase of 9.4% in the same time frame. This uptrend essentially reflects the positive effect of the acquisition.
During a conference in Berlin yesterday (Mar 6, 2017), Marriott’s CEO Arne Sorenson announced his plan to ramp up the expansion of brands acquired through the takeover, such as Sheraton, W and Aloft.
Sorenson also declared that Marriott intends to keep expansion rate at the same level as it was before the acquisition. This would effectively mean faster growth for the Starwood brands.
In fact, for Aloft, the company stated that it is planning to grow the brand at a much faster pace than Starwood. Notably, Aloft had taken about a decade to reach 100 hotels globally, while Marriott’s equivalent AC Hotels have cruised to that number in the U.S. alone, after being launched only in 2014.
Interestingly, Marriott continues to rely on acquisitions to expand its footprint. Even with 30 brands under portfolio, the company has not ruled out further M&A activities. Holding about 14–15% market share in the U.S, the company is well positioned to capitalize on the existing growth potential.
The hotel company is also trying to expand its presence outside the U.S., especially in Asia, Latin America, Middle East and Africa. Meanwhile, its European pipeline has grown consistently in the recent past and is expected to continue in 2017. With the increasing number of managed and franchised limited service hotels in Mexico, Colombia and Brazil, the company expects its distribution in the Caribbean and Latin American region to increase 75% by 2018.
Notably, the demand for hotels in these markets is greater than in the domestic space as the rising disposable income, primarily among the middle classes, is providing a boost to tourism. Within Asia-Pacific, China promises immense growth potential, despite the recent economic slowdown. Apart from China, Marriott continues to focus on other Asian countries, like India, Indonesia, Thailand and Australia, for further expansion.
The company anticipates net room additions of 6% in 2017. In fact, Sorenson announced that a new Marriott group hotel would open every 15 hours on an average, in 2017.
However, the company remains concerned about the adverse impact of political changes in the U.S. on travel and tourism. These could be major headwinds on demand from international guests in domestic hotels. Moreover, political uncertainty in Britain, upcoming elections in Europe and macroeconomic concerns in some other parts of the world including Middle East, Brazil, etc. could also weigh on the top line.
Further, Marriott’s considerable international presence makes it highly vulnerable to fluctuations in exchange rates. Significant currency headwinds are affecting most of the hoteliers globally, including Hyatt Hotels Corporation H, Hilton Worldwide Holdings HLT, Wyndham Worldwide Corporation WYN, to name a few. This volatility is expected to prevail in the near term at least.
Given the headwinds, estimates for the company’s earnings have been moving down in the past few days. Current quarter and current year estimates have been revised downwards by 3.2% and 3.0%, respectively in the last 30 days, reflecting the concern in the analysts’ mind.
However, we believe that this Zacks Rank #3 (Hold) company’s tradition of solid expansion is expected to drive growth in the long term.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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