May 25, 2012
Written By John D. Staszak
“We are upgrading Marriott International Inc. (MAR) from HOLD to BUY, and setting a target price of $48. In our view, the company’s diverse international locations, strong development pipeline, financial strength, history of share repurchases and low cost structure bode well for future earnings growth.
“The spinoff of the company’s timeshare operation in October 2011 should also enable management to focus on its franchise and hotel-management businesses. Given increased demand for group bookings (up 11% year-over-year in March 2012), we expect earnings to continue to exceed expectations. Indeed, 1Q12 earnings were at the top of management’s guidance range and slightly above consensus. …
“On April 19, Marriott reported adjusted 1Q12 earnings of $0.30 per share, up from $0.26 in 1Q11 and at the high end of management’s guidance range of $0.26-$0.30. The results were a penny above consensus but two cents below our estimate, and reflected share repurchases, lower taxes and G&A expense, and strong RevPAR (revenue per available room). …
“We believe that the current MAR share price inadequately reflects prospects for strong earnings growth over the next two years. We also expect patient investors to be rewarded over the long term as performance rebounds in Japan, the Middle East and Washington, D.C. MAR shares are trading at 22.5-times our forecast for 2012, compared to a five-year annual average range of 12-39. We believe that the shares warrant a multiple of about 28-times our 2012 estimate, in the upper half of the five-year range, and are setting a target price of $48 per share. Our target implies a potential total return, including the dividend, of approximately 25% from current levels.”
- John Staszak, Argus Weekly Staff Report, May 7, 2012