Corporate Travel Rebound May Keep Marriott Stock Traveling Higher

Key Points

• Marriott has more than tripled from its March 2020 low.
• Business travel bookings are fast approaching 2019 levels.
• Marriott posted better-than-expected first-quarter results including $5.6 billion in revenue.
• Higher room occupancy and prices, along with moderating cost pressures, point to a big earnings recovery this year.
• Marriott shares offer a nice blend of growth and value.

Marriott International, Inc. NASDAQ: MAR has more than tripled from its March 2020 low. But thanks to a post-pandemic catalyst that’s still developing,  it may not be too late to reserve shares of the high-end hotel operator.

Business travel is back!

In United Airlines’ April 19th earnings call, Chief Commercial Officer Andrew Nocella noted that business travel bookings are fast approaching 2019 levels. Mr. Nocella called the prior two weeks “the best booking days for business traffic revenue that we’ve seen since the pandemic.”

This shows that despite higher fares and lingering economic uncertainty, corporate America is becoming more comfortable flying the friendly skies. Perhaps tired of Zoom calls and virtual events, businesses and organizations are resuming in-person meetings and conferences. This is good news not just for airlines but also the hospitality industry. 

Consensus-beating first quarter results at Marriott International weren’t driven by business travelers. Corporate demand improved, but it was strong demand for leisure travel in both North American and international markets that led the charge. This reflects how immune consumers have become to pricey airline tickets and hotel rooms as pent-up travel trends persist.

More importantly, with business travel traffic on pace to hit 100% of pre-Covid levels, Marriott’s financial performances in the quarters ahead could get five-star reviews. 

Is Marriott International Off to a Good Start in 2023?

Marriott International, the world’s largest hotel chain by market cap, posted better-than-expected first-quarter results. Revenue of $5.6 billion reflected increased base and incentive management fees and represented 36% year-over-year growth. The top-line growth wasn’t as strong as the 49% growth in 2022, but it told the market that the lodging industry continues to recover from a disastrous 2020. Adjusted earnings per share (EPS) was up 67% and crushed Wall Street’s estimate by 13%.

Another key performance indicator (KPI) in the hotel space is revenue per available room or RevPAR. Marriott’s RevPAR jumped 34%, driven by a strong recovery in the International business (and especially Europe, where RevPAR rose 75%). The overall RevPAR figure compared favorably to rival Hilton Worldwide which reported a 30% RevPAR improvement for its first quarter.

What Is Marriott International’s Growth Outlook?

In addition to the tailwind from decreasing coronavirus cases and increasing vaccine distribution globally, Marriott has resilient leisure travel and rebounding business travel as growth drivers. Since its hotel brand portfolio is skewed toward corporate travel, it's the business sector that could be the biggest growth contributor in the quarters ahead. Business-focused Marriott, Sheraton and Courtyard hotels account for approximately 40% of the company’s managed properties.

Overseas expansion is another big part of the growth story. Marriott continues to add properties in Japan where room rates are surging amid a sharp rebound in tourism and domestic travel. Through a partnership with African hospitality group Baraka Lodges, Marriott plans to open its first luxury lodge in the popular safari market later this year. With international RevPAR growing faster, establishing a bigger presence in these and other non-U.S. markets makes good sense. 

Higher room occupancy and prices, along with moderating cost pressures, point to a big earnings recovery this year. The latest consensus estimate for 2023 EPS is $8.36, which implies 27% growth.

Is Marriott Stock a Good Investment?

Marriott shares offer a nice blend of growth and value. Based on this year’s EPS forecast, the stock has a 21x P/E ratio. In other words, investors can tap into a company that is projected to grow profits by 27% this year for a lesser multiple of 21x. Even after a post-earnings jump, Marriott also looks undervalued relative to the broader consumer discretionary average P/E of 29x.

The complimentary breakfast perk of the stock investing world, Marriott equity comes with a dividend yield of around 1%. This isn’t great, but with a payout ratio under 20%, there is plenty of room for dividend growth. Plus, management’s cautious stance on paying a larger dividend is sound given the ongoing industry recovery and macro uncertainty. 

In the wake of its strong Q1 report, sell-side research firm Bernstein upgraded Marriott from Market Perform to Outperform. The analyst there joined others in taking a bullish stance on the hotel chain — although his $204 price target stands alone as the most optimistic on the Street. 

The discretionary hotel industry is suddenly looking inflation-proof and Marriott is benefitting in a big way. Healthy leisure travel trends and recovering business demand point to the stock climbing past the elusive $200 mark.