Are Marriott’s Expansion Plans Good For Investors?

Current hotel demand in the U.S., as reflected by average daily rates, is expected to grow 2.1% this year, a downgrade from previous forecasts.

Against this lackluster backdrop, what does the future hold for prominent hotel operator Marriott International (NASDAQ:MAR) and are its expansion plans going to be a boon for investors?

How Successful Is Marriott Now?

Since the near KO blow of 2020 on the travel industry, Marriott has been steadily trying to rebuild its financial prowess.

Fiscal 2020 was one of the toughest years in its long operating history, with revenues contracting by 50% from the prior year due to lockdowns that significantly impacted travel. An impressive recovery began the following year, when in fiscal 2021, revenues grew by 31% on a year-over-year basis. 

One of the most important metrics in the hotel industry is revenue per available room or RevPAR. It’s calculated by dividing total room revenue by the total number of available rooms and is considered a crucial indicator of a hotel’s performance.

Marriott’s recovery efforts led to significant improvements in RevPAR. By the fourth quarter of 2021, global RevPAR was only 19% below pre-pandemic levels, representing a 40 percentage point improvement from the decline in the first quarter of the same year.

The good news kept flowing in FY 2022 with revenues surging by 50% year-over-year alongside a continued improvement in RevPAR.

But by 2023, a slowdown in growth rates was evident and Marriott’s revenue in fiscal 2023 rose by only 14% on a year-over-year basis to $23.71 billion while global RevPAR rose by 15%.

This year is also expected to be a year of normalization. In the first quarter of fiscal 2024, Marriott’s top line rose by 6% from the prior year’s period to $5.98 billion, with net fee revenues increasing by 7% year-over-year.

Marriott’s global RevPAR grew by about 4%, driven by a strong 11% gain in international markets, including a 17% increase in the Asia-Pacific region, excluding China.

The effects of travel demand normalization were most evident in the U.S. and Canada, where RevPAR grew by only 1.5% while quarterly adjusted net income saw a 4% year-over-year decline.

In May, Marriott announced a 21% increase in its quarterly cash dividend, raising it to 63 cents per share. The annual dividend rate of $2.52 yields 0.99% at current prices.

While this yield is not particularly high, it surpasses the four-year average yield of 0.51%. The low payout ratio of 20.66% indicates that the company is reinvesting the majority of its earnings.

What’s Next for Marriott International?

The hotel industry depends heavily on footprint expansion, as increased capacity generally leads to higher revenues. This is why hotel chains constantly look for new expansion opportunities. Here are a few important steps Marriott has taken so far this year:

Marriott and Mapletree Investment have agreed to operate their existing hotel and serviced apartments in District 1 of Ho Chi Minh City. This arrangement includes the introduction of Marriott’s popular JW Marriott brand in the city.

Marriott also signed an agreement with Eagle Hills to introduce another of its luxury brands, Ritz-Carlton, in the United Arab Emirates. The first Ritz-Carlton Reserve in the UAE is scheduled to open on Ramhan Island, an exclusive waterfront destination in Abu Dhabi.

In an exclusive interview, Diana Plazas-Trowbridge, Marriott’s Senior Vice President of Select Brands, revealed that the company is planning to expand into the mid-scale market with two new brands: StudioRes, which caters toward longer stays, and Project MID-T, designed for shorter stays. The mid-scale segment has shown resilience and growth in the past two to three years.

Marriott launched Business Access by Marriott Bonvoy, an online travel booking program created as a direct channel for small to medium-sized businesses within its Bonvoy loyalty program. As small businesses increasingly look for convenient travel booking options, this program has the potential to be a revenue growth driver.

Together with Chase, the largest co-brand card issuer in the U.S., Marriott Bonvoy announced new and enhanced benefits for the Marriott Bonvoy Bold Credit Card.

Marriott has high expectations for its expansion strategies, though the company anticipates some moderation this year.

Overall, management expects comparable system-wide worldwide RevPAR to grow by only 3%-5% and forecasts adjusted EPS to range from $9.31 to $9.65, indicating a slight decline from $9.99 reported in the previous year. Despite these near-term jitters, the stock has the hallmarks of being a solid long-term investment.

Are Marriott Expansion Plans Good For Investors?

Via collaborations with JP Morgan Chase and growth in footrprint globally, especially in the United Arab Emirates, Marriott’s expansion plans appear to be very good for long-term investors.

Overall, Marriott has a mix of pluses and minuses with 17 analysts revising their estimates lower for the upcoming quarter while on the flipside management has been buying back shares aggressively. One reason for that bullish insider sentiment may well be the high gross margins with which the company operates.

Among analysts, the upside consensus price target is $243 per share with a range that spans from $195 per share to $275 per share while a 5-year discounted cash flow forecast pegs fair value at $276 per share.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.