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Marriott (MAR) Stock Up 35% in a Year: Can it Gain Further?


Marriott International, Inc. MAR is riding high on Starwood acquisition, improving North-American business, strong RevPAR gains, sizeable international exposure, an attractive brand-position and positive earnings streak. In a year’s time, the stock has rallied 35.3%, outperforming the industry’s gain of 24.7%. However, lingering political uncertainties in key international markets and currency headwinds might persistently limit revenue growth. Let’s delve deeper.

Hidden Catalyst

Marriott continues to impress investors with its solid bottom-line performance. In first-quarter 2018, the company’s adjusted earnings per share came in at $1.34, which surpassed the Zacks Consensus Estimate of $1.25 and increased 40% year over year. Notably, the bottom-line figure outpaced the consensus mark for the 15 straight quarters. Strong RevPAR gains and room growth drove the company’s results. Consequently, Marriott raised its 2018 earnings view. It anticipates earnings in the band of $5.43-$5.55 per share, up from the prior-guided range of $5.11-$5.34.

Additionally, the company is persistently relying on acquisitions in order to expand its footprint globally. In 2016, it completed the acquisition of Starwood and became the world's largest hotel company. As a result, Marriott's distribution has more than doubled in Asia and the Middle East & Africa combined. According to the company, it has made great progress in integration of Starwood. Also, Marriott’s move to buy Starwood shows that the hospitality industry thrives on such blockbuster deals, which are critical to their success at a time when online booking is becoming important in the lodging business.

Recently, Marriott announced its plans to unify its loyalty program benefits across Marriott Rewards, The Ritz-Carlton Rewards and Starwood Preferred Guest (SPG) in August. The combined loyalty program is expected to provide richer perks to the company’s loyalty members by enabling them to earn roughly 20% points for every dollar spent. Also, it is likely to enrich members with more than what was offered under the prior programs. Under this global loyalty program, members can book stays, and earn or redeem points across 29 brands covering 6,500 hotels in 127 countries and territories.

Furthermore, this Zacks Rank #3 (Hold) company is very optimistic about growth opportunity in India. Recently, the Asian Development Bank forecasted that India will be the fastest growing economy in Asia. Marriott has more than 20,000 rooms in the country.

Hurdles to Cross

Marriott faces various challenges related to the Starwood integration. If these integration efforts fail, it may not realize the anticipated synergies and benefits. Moreover, the diversion of management’s attention from day-to-day business concerns, given the acquisition along with any difficulties encountered in the transition and integration process, might adversely affect its financial results. The integration process could also take longer than anticipated and involve unanticipated costs.

Despite Marriott’s immense growth potential, a sluggish economy and oversupply in Brazil are weighing on the Latin American region. In the Middle East, sanctions on Qatar have reduced travel into and out of that country. Meanwhile, political unrest, lower government spending, new hotel supply and a tough oil market continue to hurt tourism in other Middle East markets.

Stocks to Consider

Some better-ranked stocks in the same space are Brinker International, Inc. EAT, Del Taco Restaurants, Inc. TACO and Denny's Corporation DENN. All these stocks has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brinker International has a long-term earnings growth rate of 10.9%.

Del Taco Restaurants has an impressive long-term earnings growth rate of 15.8%.

Denny's has reported better-than-expected earnings in the preceding two quarters.

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