The US hotel market remains dramatically undersupplied after developers curtailed new construction during the 2007-09 credit crisis; this created a situation where demand growth has outpaced additions on the supply side, observes Elliott Gue, editor of Capitalist Times.
Hotelier Marriott International (MAR) posted strong fourth quarter results that beat the Bloomberg consensus estimate for sales and earnings.
The company generates about 80% of its revenue from its home market; strength in US demand and booking prices remain central to its growth story.
The supply of US hotel rooms ticked up by 0.9% last year and is expected to grow by 1.3% in 2015, one of the main reasons that Marriott International’s hotel network has approached record occupancy rates.
Marriott International has taken advantage of the tightening supply-demand balance to raise the rates it charges. For example, the company has bid less aggressively on corporate accounts to make more rooms available at the higher rates offered to regular travelers.
Although management expects demand from international travelers to weaken because of the strong US dollar, these customers account for only 5% of its bookings.
Based on these trends, management expects revenue per available room to climb by 5% to 7% this year. We wouldn’t be surprised if Marriott International’s sales were to come in toward the high end of that range in the first half of 2015.
The company’s development plans also position the firm to gain market share. Marriott International controls about 10% of the US market, but 26% of the hotel rooms under construction will be under its banner. In light of these strong results, we’ve raised our buy target on Marriott International to $90 per share.
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