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Marriott Opens 7,000th Property, Eyes Asia-Pacific Expansion

Zacks Equity Research

Marriott International, Inc. MAR announced that it opened the 7,000th property in Hong Kong. The new hotel, named The St. Regis Hong Kong, is part of the company’s luxury portfolio.

This move is in line with Marriott’s continual efforts to fortify presence around the globe. In order to be the largest hotel company in the world, it acquired Starwood in 2016. Ever since then, its distribution has more than doubled in Asia, and the Middle East & Africa combined.

The move also underscores Marriott’s strategy to capitalize on the demand for hotels in international markets. It is also the company’s way of countering competition from the likes of Hyatt H and Hilton HLT. Backed by strong brand presence, shares of Marriott have gained 22.8% in the past three months, outperforming the industry’s 19.2% rally.

 

Expansion in Asia Pacific — A Priority

Marriott expects to capitalize on global travel trends in China, India and Indonesia. High population along with a burgeoning middle class is expected to help the company to derive profits from operations in these countries. China continues to be the most important growth driver for Marriott, with more than 300 hotels in the pipeline. In 2019, the company expects to open more than 30 hotels in China, including the JW Marriott Marquis Hotel.

Notably, the demand for hotels in these markets is greater than that in the domestic space as the rising disposable income, primarily among the middle class, is boosting tourism. Meanwhile, as income rises, China's middle class is looking for higher-quality products and elevated travel experiences. Notably, China is the largest source market for outbound travel now. In fact, China outbound travel is set to boom further, with 700 million expected trips over the next five years.

In fourth-quarter 2018, Marriott’s system-wide revenue per available room (RevPAR) increased 5% in the Asia Pacific region, following 6% gain in the preceding quarter. The company expects the same metric to grow at a mid-single-digit rate in 2019.

Expansion to Facilitate Top Line

We believe that by expanding presence, Marriott will further witness top-line growth. In the fourth quarter of 2018, RevPAR for worldwide comparable system-wide properties increased 1.3% in constant dollars (up 0.1% in actual dollars), driven by a 2.2% improvement in average daily rate (ADR), partially offset by a 0.7% fall in occupancy.

For 2019, Marriott’s comparable system-wide RevPAR is expected to increase 1-3% in North America, 2-4% outside North America and 1-3% worldwide.

Zacks Rank & Stock to Consider

Marriott currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the hotel space is Red Lions Hotel RLH, currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Red Lions’ earnings for 2019 are expected to grow 95.6%.

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