EUR 850.00 For Business Accounts Only

Morningstar | Marriott's 2019-21 Outlook In Line With Forecast; Brand Strengthening Already Reflected in Valuation

Marriott provided its three-year plan (through 2021) that tracked our forecast and supported our long-held view that the company's brand advantage, the source of its narrow moat, continues to strengthen, driven by its industry-leading scale. As such, we don't plan to adjust our $127 fair value estimate and see shares as fairly valued. For those seeking hotelier exposure, narrow-moat Wyndham Hotels trades at an attractive margin of safety to our $72 fair value estimate. Marriott's three-year plan also calls for 2021 EPS of $7.65-$8.50 (versus our $8.05 forecast), EBITDA CAGR of 6%-9% (versus our 7.5%), revenue per available room of 1%-3% (versus our 2%), and shareholder return of $9 billion to $11 billion (versus our $9.9 billion).

Marriott continues to offer third-party hoteliers strong incentive to join its portfolio that offers access to an industry-leading 125 million loyalty members (which make up around 50% of its total room nights), across 30 brands (more concepts than any other operator), with a reservation platform that drives 74% of total company bookings direct (reducing mix on higher costs channels such as online travel agencies). Its strong competitive position is shown in its 16% share of existing North American rooms (narrow-moat Hilton is the number two player at 13%) with 25% share of all Visa card spend in the region. The company also holds the leading position in Asia-Pacific with 6% of all existing rooms (above the 5% share held by Hilton). As a result, Marriott's net unit growth as averaged 5.5% over the past three years, above the 2% long-term U.S. industry average unit growth. In our view, Marriott is well-positioned to expand its room share further and achieve its target for 230,000 to 255,000 net room adds over the next three years (versus our 231,000 net room add forecast), implying 5.8% annual growth. The target is supported by its 478,000 units in the pipeline, of which 214,000 are already under construction.

Renovation investment buoys our view that Marriott's brand advantage will strengthen over the next five years. Marriott has a record of generating solid return on renovation investments. Its core Marriott brand began a transformation in 2015, and since then these properties have seen a 7.2 average revPAR index increase the following year (revPAR index is an industry measure of share). Marriott continues to improve the quality of its Sheraton brand with one fourth of these properties committed or in the process of renovation. Encouragingly, Sheraton's revPAR index has remained above 100 (a measure above 100 implies share gain) the past two years, after being below that mark, as Starwood management had underinvested in the brand before Marriott acquired it in 2016. Marriott also discussed renovation plans for its Element and W brands. Improving the quality and revPAR index measures of brands should further incentivize third-party operators to join Marriott, thereby driving incremental unit growth.