On Thursday, Baird raised its price target for Marriott International (NASDAQ: NASDAQ:MAR) shares to $258 from $245, while maintaining a Neutral rating on the stock. The adjustment reflects a positive long-term view on the company's business fundamentals, despite current performance slightly below the expected growth trajectory.
According to Baird, Marriott's core business has seen year-over-year gross fee increases of 7% in both the first and second quarters of 2024, which is somewhat below the company's stabilized growth algorithm. This has led investors to seek greater returns.
Looking forward to 2025, Baird anticipates Marriott's growth rates will align more closely with its stabilized growth algorithm, particularly after accounting for the net addition of rooms from the MGM acquisition.
Baird also expects a sequential improvement in Marriott's organic net unit growth, driven by an uptick in signings and starts. The recent investor focus has been on Marriott's relatively slower organic net unit growth, especially when compared to Hilton's growth profile. This difference has been a significant factor in the valuation multiple gap between Marriott (MAR) and Hilton (HLT).
Marriott's growth strategy is noted to depend more on revenue per available room (RevPAR) growth, partly because its organic net unit growth is not as rapid as that of Hilton or Hyatt. Given the current global macroeconomic uncertainties, investors seem to be applying a larger discount to Marriott's prospects.
On a positive note, while some of Marriott's managed hotels are currently dealing with union strikes, Baird anticipates minimal impact on earnings from these disruptions. Moreover, risks and operating leverage concerns related to incentive management fees in Greater China are believed to be better understood by the investment community, which could mitigate near-term downside risks.
In other recent news, Marriott International has agreed to enhance its data security practices following a settlement with the U.S. Federal Trade Commission (FTC). This agreement arose from allegations of multiple data breaches impacting millions of customers worldwide. In addition, the company agreed to pay a $52 million penalty to address similar allegations in 49 states and the District of Columbia.
In the financial realm, BofA Securities reaffirmed its Buy rating on Marriott's stock, highlighting the company's strong management and sustainable demand. Goldman Sachs also initiated coverage with a positive outlook, setting a price target of $267.00. Bernstein SocGen Group upgraded Marriott's stock from Market Perform to Outperform, setting a new price target of $262.00.
Marriott's CEO, Anthony Capuano, has indicated the company's intent to monitor travel spending trends among lower-income consumers. This follows a slight decrease in second-quarter ancillary spending on items such as food, beverage, and spa services. These are just a few of the recent developments involving Marriott International.
InvestingPro Insights
Complementing Baird's analysis, recent data from InvestingPro sheds additional light on Marriott International's financial position. The company's market capitalization stands at $73.92 billion, reflecting its significant presence in the hospitality industry. Marriott's P/E ratio of 26.12 suggests that investors are willing to pay a premium for its earnings, which aligns with Baird's positive long-term view on the company's fundamentals.
InvestingPro Tips highlight Marriott's impressive gross profit margins, which is evident in the latest data showing a gross profit margin of 81.77% for the last twelve months as of Q2 2024. This robust margin supports the company's ability to generate strong cash flows, even as it navigates challenges in organic net unit growth.
Another InvestingPro Tip notes that Marriott has been aggressively buying back shares, which could be seen as a sign of management's confidence in the company's future prospects. This strategy may also help support earnings per share growth, potentially offsetting some of the concerns about slower organic growth rates mentioned in Baird's analysis.
For investors seeking a more comprehensive understanding of Marriott's financial health and growth prospects, InvestingPro offers 10 additional tips, providing a deeper dive into the company's performance metrics and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.