Berko: Marriott shows good growth potential
Friday, December 20, 2013 7:00 AM
Dear Mr. Berko:
My new broker recommended that I purchase 150 shares of Marriott International. I would like your opinion before I discuss this further with him.
T.R., Waterloo, Iowa
You and your new broker are off to a good start. An acquaintance of mine who travels frequently tries to stay at a Marriott wherever he travels. He used to be a medium big shot at Hyatt Hotels. Prior to that, he was the general manager of a large hotel property in California. Before that, he was a consultant for Wyndham when it was a subsidiary of Cendant. In early 2009, I asked him why he insists on staying at a Marriott. He commented: “I don’t like spending big money on a hotel room where I spend less than eight hours during my business day. I travel to over 30 cities a year, and I’ve never been disappointed at a Marriott, though I have been terribly disappointed at other fine hotels. And when I vacation with my family, the Marriott Rewards program provides us with the finest choices I could want.”
Marriott International Inc. (MAR-$46.84), with 127,000 employees, operates or franchises 3,800 hotels and resorts, totaling 660,000 rooms in 50 countries, under the Marriott, Courtyard, Residence Inn, Fairfield Inn, Ritz-Carlton and Renaissance names. Ongoing expansion plans for 140,000 rooms are in the pipeline over the next decade. So I believe that your broker’s MAR recommendation is timely and expialidocious. According to analysts, MAR’s revenues per available room and average daily rates have been steadily rising. Tourism and business travel are growing between 5 and 6 percent annually, certainly faster than the less than 1 percent annual growth in new hotel rooms. And MAR’s expansion plans for the next decade may allow the company to capture a significant portion of this worldwide growth.
Since the market bottom in 2009, MAR shares have risen from $12 a share to more than $46, and management has proved its mettle with an impressive increase in net profit margins, from 3.1 percent in 2009 to 5 percent this year. Earnings per share have more than doubled, from 94 cents in 2009 to $2.05 this year, and revenues are expected to rise from $11 billion to $13 billion. Some observers on Wall Street suggest that the next quarterly dividend may be raised by 10 percent. And with the Federal Reserve’s continued loose money policy, business travel and tourism are likely to be bolstered over the foreseeable future. Therefore, it’s reasonable to expect that MAR’s revenues, earnings, net profit margins and share price will continue to set records.
I’m encouraged by MAR’s spinoff of its time share business, which many believe will enhance net profit margins because it will allow management to increase its focus on its franchised operations. I’m also encouraged by MAR’s pending sale of its Edition Hotels in London, Miami and New York for $800 million, a significant portion of which could serve as a bonus to MAR shareholders. And I’m further encouraged that crusty 81-year-old J.W. Marriott Jr., who took over the company from Big Daddy, J.W. Marriott Sr., in 1972, recently turned over the CEO-ship to former Chief Operating Officer Arne Sorenson. Sorenson, who graduated from the University of Minnesota Law School, was born in Tokyo in 1959, is highly regarded in the hospitality industry and has been with MAR since 1996. He is a tall, slender, handsome fellow with an easy smile and has added a little extra personality and bonhomie to the MAR board.
The Street appears bullish on MAR. Value Line suggests that the stock could trade between the high $70s and the low $80s in the next three to four years. Credit Suisse has a strong “buy” recommendation on MAR, as do Argus, Ned Davis Research, Merrill Lynch, Market Edge and Reuters. Meanwhile, Vanguard, T. Rowe Price, J.P. Morgan and American Funds seem to agree, supported by their ownership of 24 million shares. And five members of the Marriott clan own more than 20 million shares. Therefore, I have no objection if you add your name to this prestigious list of shareholders. So consider staying at a Marriott when you next travel; the hotels have got a great bath soap.
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