Can Marriott (MAR) Stock Maintain Its Stellar Show In 2018?

Hospitality highflyer Marriott International, Inc. (NASDAQ:MAR) has exhibited outstanding price performance in 2017. Year to date, the stock has returned a whopping 65.1% compared with the industry’s gain of 27.8%.

Further, Marriot delivered a ROE of 31.6% in the trailing 12 months compared with the industry’s 27.5%. This shows that the company has a more efficient profit generation and reinvestment capacity compared to peers.

The third quarter earnings beat, upgraded guidance for 2017 and an encouraging view for 2018 makes us increasingly optimistic about the stock. Let’s see what the New Year holds in store for Marriot.

Increased Travel Demand to Drive Growth

Global travel is estimated to increase at a 7% compounded rate over the next 10 years and international trips are expected to top $1.8 billion by 2030. We believe that Marriott is well positioned to take advantage of the projected growth.

Given a steady rise in business and leisure travel, and higher transaction volumes, Marriott is well-poised to grow in 2018. It stands to benefit from its strong global footprint and an unmatched portfolio of lodging brands.

Acquisitions to Contribute Significantly

The Starwood acquisition completed in September 2016 is expected to be accretive to cash flow and earnings by 2018, and result in annual cost savings of at least $250 million on the back of lower operating and general & administrative expenses. Marriott intends to keep expansion rate at the same level as it was before the acquisition. This will effectively mean faster growth for the Starwood brands, moving forward.

Also, the company is expected to reap the benefits of increasing accountability, quality assurance, and capital investments in acquired brands such as Sheraton, W and Aloft through 2018. Notably, the company has signed 3,500 new Sheraton rooms in the last 12 months alone, with representation from all continents. The momentum is expected to continue in 2018.

With the Protea Hospitality Group buyout in 2014, the company became the largest hotel company in Africa and has nearly doubled its presence in the Middle East and Africa region. We believe thae these acquisitions will help the company to carry on its strategy of expanding its portfolio worldwide through 2018. Interestingly, even with 30 brands under its portfolio, the company has not ruled out further M&A activities.

Marriott International Net Income (TTM)

Robust Expansion Plans

Marriott plans to significantly grow its global portfolio of luxury and lifestyle brands and anticipates gross room additions of 7% in 2018. This is likely to build economics, scale, and consumer preference for its brands.

Also, 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.

In August 2017, the company entered into a joint venture agreement with Alibaba (NYSE:BABA) to develop a travel storefront that leverages Alibaba's digital travel platform, retail expertise, and digital payment platform, Alipay. Through 2018, we expect this joint venture to aid in capturing a greater share of the growing Chinese travel market, increase membership of its loyalty programs and reduce distribution costs.

Loyalty Programs to Support Customer Acquisition

Marriott has an industry-leading guest loyalty programs – Marriott Rewards, Ritz-Carlton Rewards and Starwood Preferred Guest. In 2018, the company aims to merge its loyalty programs into one to form an even larger loyalty community and provide a more rewarding experience to the guests. Loyalty programs are Marriott's most powerful marketing platform and it continues to invest in marketing partnerships and innovations.

Asset Sale to Provide Stable Growth Profile

We expect regular asset sale to continue through 2018, further strengthening Marriott’s financial flexibility. The sale of assets helps the company to grow through management and licensing arrangements, instead of direct ownership of selective assets. However, Marriott continues to manage the properties post sale. A higher concentration of franchise fees reduces earnings volatility and provides a more stable growth profile.

Upward Estimate Revisions for 2018

Analysts have increased their estimates for the company for the next year, which makes the earnings picture favorable. Over the past 60 days, nine estimates have gone up compared with one downward revision for the next year. This trend has caused the consensus estimate to trend higher, going from $4.70 a share 60 days ago to its current level of $4.79 for the next year.

Zacks Rank and Growth Score

The company has a Zacks Rank #2 (Buy) and a Growth Score of B, indicating that it is an impressive choice for growth investors.

Key Picks

Some other top-ranked stocks in the hotels and motels space include Hilton Worldwide Holdings (NYSE:HLT) , Choice Hotels International (NYSE:CHH) and Intercontinental Hotels Group (NYSE:IHG) , each carrying a Zacks Rank #2.

Long-term earnings per share growth rate for Hilton Worldwide, Choice Hotels and Intercontinental Hotels Group is projected to be 5%, 9.5% and 9.3%, respectively.

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