Worldwide Development And citizenM Hotels Will Expand Market Reach

Key Takeaways

• Strong pipeline and strategic brand additions position Marriott for robust future growth and expanded earnings.
  
• Enhancements in digital platforms and focus on conversions to boost efficiency, loyalty, and profitability.
  
• Macroeconomic uncertainties, especially in the U.S. and China, pose risks to revenue growth, occupancy rates, and new development, impacting Marriott's financial expectations.

Catalysts

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

• Marriott's strong global development activity, with record first-quarter signings and a pipeline of over 587,000 rooms, including 42% under construction, suggests robust future revenue growth.
  
• The anticipated addition of citizenM hotels, known for their tech-savvy and efficient spaces, is expected to complement Marriott's existing brands and enhance earnings through an expanded portfolio offering.
  
• Continued enhancements in digital and technology platforms are expected to improve operational efficiency, potentially increasing net margins by streamlining booking and expanding revenue opportunities.
  
• Marriott Bonvoy’s growing membership base, now at 237 million, could drive higher occupancy rates and revenue through increased loyalty and repeat bookings.
  
• The company’s focus on conversions, representing about one-third of recent signings and openings, indicates a strategic shift that could accelerate future earnings by tapping into existing properties with lower development costs.

Marriott International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Marriott International's revenue will grow by 62.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 35.9% today to 11.6% in 3 years time.
• Analysts expect earnings to reach $3.4 billion (and earnings per share of $13.9) by about May 2028, up from $2.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.8 billion in earnings, and the most bearish expecting $3.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.0x on those 2028 earnings, down from 28.0x today. This future PE is greater than the current PE for the US Hospitality industry at 21.9x.
• Analysts expect the number of shares outstanding to decline by 3.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.97%, as per the Simply Wall St company report.

Marriott International Future Earnings Per Share Growth

Risks

• The macroeconomic uncertainty, particularly in the U.S., poses risks as slower economic activity and lower consumer confidence could dampen future revenue growth, leading to lower occupancy rates and weaker RevPAR.
  
• Declines in U.S. government RevPAR and expected softer growth in U.S. select service hotels due to lower transient demand could adversely impact revenue and the company's fee income.
  
• Uncertainty around construction costs and a challenging financing environment could slow the pace of new development, potentially affecting the long-term net room growth and associated revenue.
  
• Greater China experienced a 2% decline in RevPAR due to a weaker macro environment, which could negatively impact future room revenues and international growth if such conditions prevail.
  
• The reduction in full-year RevPAR growth guidance due to macroeconomic concerns reflects potential risks to earnings as these factors could hamper the ability to meet prior revenue and financial expectations.

Valuation

• The analysts have a consensus price target of $271.873 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 $330.0, and the most bearish reporting a price target of just $205.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $29.6 billion, earnings will come to $3.4 billion, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $251.96, the analyst price target of $271.87 is 7.3% 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.