Transforming Hospitality, Driving Growth Through Digital Innovation And Tactical Expansion

Key Takeaways

• Marriott's digital transformation and expansion of the Bonvoy loyalty program are key to unlocking new revenue opportunities and enhancing efficiency.
  
• Strategic partnerships and global portfolio expansion signal potential for new revenue streams and increased market share.
  
• Global financial challenges, China's economic slowdown, shifting U.S. and Canada leisure demand, reliance on new brand performance, and increased operational costs may impact Marriott's growth and margins.

Catalysts

Engages in operating, franchising, and licensing hotel, residential, timeshare, and other lodging properties worldwide.

• Marriott's focus on digital and technology transformation, especially in reservations, property management, and the loyalty program, is likely to unlock new revenue opportunities and enhance operating efficiencies, impacting revenue and net margins.
  
• The growing membership and engagement within the Marriott Bonvoy loyalty program, reaching record high penetration levels, are expected to drive higher and more consistent occupancy rates, positively affecting revenue.
  
• The significant expansion of Marriott's global portfolio, with a record addition of 46,000 net rooms and a 7.1% growth in distribution, is expected to contribute to revenue growth through increased market share and guest offerings.
  
• Continued strength in the Group segment, with pacing up 9% year-over-year and both room nights and average daily rate (ADR) increasing, indicates robust future demand that will likely drive revenue growth.
  
• Strategic partnerships and brand expansions, including the successful initial bookings from the MGM Collection integration and interest in new mid-scale brands, suggest potential for new revenue streams and enhanced brand loyalty, positively influencing earnings.

Assumptions

• Analysts are assuming Marriott International's revenue will grow by 64.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 45.4% today to 12.0% in 3 years time.
• Analysts expect earnings to reach $3.4 billion (and earnings per share of $13.08) by about September 2027, up from $2.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $2.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.8x on those 2027 earnings, down from 21.8x today. This future PE is greater than the current PE for the US Hospitality industry at 19.5x.
• Analysts expect the number of shares outstanding to decline by 5.61% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.47%, as per the Simply Wall St company report.

Risks

• The global financial environment, especially the challenging financing conditions in the U.S. and Europe, could strain Marriott's expansion and development plans, affecting future revenue growth.
  
• Potential slowdown in China due to weaker macroeconomic conditions and increased outbound travel, which could affect room demand and RevPAR growth in the Greater China region.
  
• Flattening leisure demand in the U.S. & Canada with customers opting for international destinations might lead to lower domestic RevPAR growth.
  
• Reliance on the performance of newly added brands and properties, such as the MGM Collection, where initial performance may not sustain in the long term, potentially impacting overall earnings.
  
• Increased operational costs linked to technological investments and property renovations, such as those planned for the Sheraton Grand Chicago and other owned assets, could pressure net margins if not offset by corresponding revenue increases.

Valuation

• The analysts have a consensus price target of $244.42 for Marriott International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $275.0, and the most bearish reporting a price target of just $195.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $28.6 billion, earnings will come to $3.4 billion, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 7.5%.
• Given the current share price of $227.6, the analyst's price target of $244.42 is 6.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.