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Marriott's Strategic Efforts Bode Well: Should You Hold?

Zacks Equity Research

The year 2019 has been an eventful one for Hotels and Motels industry so far. Year to date, the industry has rallied 13.7% compared with the S&P 500’s 11.1% increase. Marriott International, Inc. MAR, which belong to the same industry has also gained 12.9% but underperformed the industry. Currently, Marriott is benefiting from the Starwood acquisition, sizeable international exposure and an attractive brand position. However, the company’s dismal top-line performances over the past four quarters have been worrisome. Let’s delve deeper.

Key Catalysts

Marriott is a leading company in the luxury and lifestyle space, which includes brands that own more than 6,900 properties in 130 countries and territories. Marriott’s extensive portfolio and a strong brand position allow it to charge a premium room rate in the highly competitive lodging industry. Given its property locations, we believe that the company is well-poised to benefit from the increasing market demand on the back of stepped-up business as well as leisure traveling in major North American and international locations. RevPAR in North America rose 0.2% in the fourth quarter of 2018.

Further, Marriott is consistently trying to expand its presence worldwide and capitalize on the demand for hotels in international markets. Moving ahead, the company plans to significantly expand its global portfolio of luxury and lifestyle brands. For 2019, Marriott anticipates a 5.5% net room growth, which is 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.

These apart, the company’s European pipeline has grown consistently in the recent past and is expected to continue moving ahead. In fact, the company aims to expand its lead in the luxury and full-service segments in this region, which have the largest portfolio in the upscale division. Marriot is very optimistic about its growth opportunity in India.

Concerns

Marriott’s lower-than-expected top-line performances over the past four quarters have been concerning for investors. In the fourth quarter, total revenues amounted to $5,289 million, which missed the Zacks Consensus Estimate of $5,607 million.

The company’s revenues missed the Zacks Consensus Estimate in the first, second and third quarter of 2018 as well. In the second quarter, total revenues came in at $5.05 billion, which fell short of the consensus mark of $5.37 billion and declined 0.6% from the year-ago quarter figure.

Marriott, which shares space with Choice Hotels International, Inc. CHH and Extended Stay America, Inc. STAY, carries a Zacks Rank #3 (Hold).

Key Pick

A better-ranked stock in the same space is Hilton Worldwide Holdings Inc. HLT. The company has a Zacks Rank #1 (Strong Buy) and an impressive long-term earnings growth rate of 9.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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