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Marriott Rides on Acquisition & Expansion Despite Competition

Zacks Equity Research
Marriott (MAR) stands to gain from Starwood acquisition and strong brand image despite intense competition.

Marriott International, Inc. MAR continues to gain from Starwood acquisition, striking brand image, increased demand for travel and significant international exposure. However, fluctuations in exchange rates are detrimental to the company’s foreign presence. Moreover, a highly competitive industry remains a concern.

Notably, Marriott continues to impress investors with its solid bottom-line performance. In second-quarter 2018, the company’s earnings were $1.73, reflecting an increase of 56% year over year. In fact, Marriott’s earnings topped the consensus mark for 16 straight quarters.

Consequently, Marriott raised its 2018 earnings view. It anticipates earnings of $5.81-$5.91 per share, up from $5.43-$5.55 stated earlier. Comparable system-wide RevPAR is expected to increase 2-3% in North America, 5-6% outside North America and 3-4% worldwide on a constant-dollar basis.

Acquisition — Strong Growth Driver

Marriott continues to rely on acquisitions in order to expand global footprint. In 2016, it completed the acquisition of Starwood and became the world's largest hotel company. With the completion of this acquisition, Marriott's distribution more than doubled in Asia, Middle East & Africa.

Moreover, in 2017, Marriott’s CEO, Arne Sorenson announced that the company was planning to ramp up the expansion of brands acquired via takeover. These brands include Sheraton, W and Aloft. To this end, management is working to increase accountability, quality assurance and capital investments of the Sheraton brand while enabling Marriott's systems and programs to drive the top line, and reduce costs.

Further, with the Protea Hospitality Group buyout in 2014, Marriott became the largest hotel company in Africa and nearly doubled its presence in the Middle East and African region. This was followed by the acquisition of Delta Hotels and Resorts brand in 2015. These acquisitions strategies are expected to help the company to carry on with its global portfolio expansion. Interestingly, even with 30 brands under portfolio, the company has not ruled out further M&A activities.

Strong Expansion Strategies

Marriott is consistently trying to expand presence worldwide and capitalize on the demand for hotels in international markets. For 2018, the company anticipates 5% gross room additions, which are likely to continue building economics, scale and consumer preference for its brands.

The hotel company is also trying to expand its footprint outside the United States, especially in Asia, Latin America, the Middle East and Africa. Meanwhile, its European pipeline has grown consistently in the recent past and is expected to continue in the years ahead.

Marriot is very optimistic about growth opportunity in India. The Asian Development Bank forecasted that India will be the fastest growing economy in Asia. Marriott has more than 20,000 rooms in India. Moreover, with increasing number of managed and franchised limited service hotels in Mexico, Colombia and Brazil, the company expects its distribution in the Caribbean and Latin America to increase 75% by 2018.

Concerns

Despite immense growth potential, an oversupply of hotels in few international regions is hurting Marriott. The company is facing huge threat from hotel giants like Hyatt H, Hilton HLT and Extended Stay America STAY. Further, since the hospitality industry is cyclical in nature, declines in consumer demand due to adverse general economic conditions, poor travel patterns, lower consumer confidence and high unemployment can lower revenues and profitability of Marriott properties.

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Extended Stay America, Inc. (STAY) : Free Stock Analysis Report
 
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Hilton Worldwide Holdings Inc. (HLT) : Free Stock Analysis Report
 
Hyatt Hotels Corporation (H) : Free Stock Analysis Report
 
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