Struck hard by the pandemic, this $50 billion company’s latest results are impressive. Overseas investing expert Rodney Hobson thinks there’s more positive news to come.
International companies tend to fare better when their home base is doing well. Such is the hopeful scenario facing hotels group Marriott International (NASDAQ:MAR).
While all parts of the labour market in the US have held up surprisingly well during interest rate rises, it is leisure and hospitality that catches the eye: an average of 95,000 jobs were added in each of the six winter months when activity would normally be sluggish. Another 72,000 vacancies were filled in the sector in March.
The downside, from the employers’ side, is that these new recruits cost money. Average hourly wages rose 0.3% in March after a 0.2% rise in February, and with all parts of the US economy competing for workers the trend is set to spiral upwards rather than tail off. Food price inflation is also a worry. These are tricky times for a sector that is still struggling to recover fully from the devastating shutdowns around the globe during the pandemic.
Nonetheless, Marriott’s most recent figures for the final quarter of 2022 are highly encouraging. Revenue for the full year was up 50% on 2021 at $20.8 billion and net income more than doubled to nearly $2.4 billion despite the lingering impact of the Omicron variant of Covid-19.
There was an inevitable slowdown in growth in the final quarter as comparatives became much tougher, but revenue still rose 33% to $5.9 billion and net income 44% to $673 million.
Source: interactive investor. Past performance is not a guide to future performance.
Chief executive Anthony Capuano put it in perspective: “Just two years after experiencing the sharpest downturn in our company's history, we reported record financial results."
First-quarter figures for this year, due out in May, are expected to show further significant improvement, especially as comparisons will be with an Omicron-affected quarter last time. However, Marriott warns that business people and holidaymakers are tending to book rooms at short notice, so visibility of earnings is less than in pre-pandemic days.
Marriott has the advantage of offering a well-known brand in its own name plus about 30 others, some with niche markets and one other famous name in Sheraton. Together they provide 1.5 million rooms in well over 100 countries, of which about one million are in the US.
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Expansion is continuing apace, despite withdrawal from Russia after the invasion of Ukraine. Last year Marriott signed on average two deals a day, adding 108,000 rooms to the portfolio. The acquisition of City Express, signed in October, will add about 17,000 rooms this year and will take Marriott into a more affordable segment of the market.
It claims it will become the largest hotel company in the Caribbean and Latin America. City Express owns 152 hotels in Latin America, mainly in Mexico, and the plan is to expand using Marriott’s expertise in growing regional brands.
Marriott shares responded well when the latest figures were released in February but the uncertainty continues to put a damper on the price. The shares understandably fell off a cliff when the pandemic struck and have recovered comparatively quickly to just above the pre-pandemic level of $150. A high of $180 a year ago proved to be too much too soon, although at the current $164 the shares are not too far off their best and they are edging sideways, with $140 looking a solid floor.
The price/earnings ratio of 22.5 reflects the market’s belief that improvements will continue, though investors may wish that, with the yield under 1%, more of the strong cash generation was put into the dividend rather than share buybacks.
Hobson’s choice: Buy below $170. The next push should be upwards and the $180 ceiling is there to be broken.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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