This leading operator of hotels posted outstanding results in the latest quarter, with sales and per-share profits exceeding the consensus analysts’ estimates. Business has remained strong so far in 2023, which should lead to additional gains in the top and bottom lines.
I like the company’s “asset-light” business model, its stable of well-known brands, and its ability to capture what should be continued growth in travel and leisure spending.
Marriott has perhaps the most powerful portfolio of brands in its industry. The firm’s 30 brands cover more than 8,000 properties in more than 130 countries. Brands include The Ritz-Carlton, St. Regis, Marriott, W Hotels, Sheraton, Westin, Courtyard, Springhill Suites, AC Hotels, Fairfield, and Aloft.
Marriott typically does not own the physical properties. Rather, the firm generates its revenue via management contracts and/or franchise agreements. This “asset-light” approach — operating and managing but not owning the physical properties — allows the firm to truly exploit the power of its brands while reducing financial risk and limiting exposure to the vagaries of the commercial real estate market.
Of course, the company’s exposure to travel and leisure leaves it vulnerable to downturns in the economy, not to mention pandemics. The Covid lockdowns represented an especially challenging time for the industry and Marriott.
However, consumers are spending on travel again, which has been a big driver of recent growth. Fourth-quarter revenues were up 33% to $5.9 billion. Operating income grew 57%. The company added more than 65,000 rooms globally during 2022. Net room growth should be in the 4% range in 2023.
Since the end of the fourth quarter, the company has seen continued strength. In January, worldwide revenue per available room was up 52% year over year. Marriott expects first quarter results to benefit significantly from an easier comparison to the 2022 first quarter. On the plus side, Marriott should benefit in 2023 from the reopening of China’s borders.
For 2023, per-share profits should rise around 15% to $7.68 on a 10% jump in revenues. Marriott’s stock trades at 22 times the 2023 estimate. That’s not a bargain-basement valuation, but Marriott’s brand power merits a premium valuation. From a dividend perspective, the firm is currently paying a quarterly rate of $0.40 per share. The current dividend yield is 0.9%.
Investors should have exposure to the travel sector, and Marriott represents a blue-chip play in the space. The shares are currently offering a good entry point, and a pullback to the low $160s would represent an opportunity to be more aggressive on the buy side.