Riding the wave
Marriott International Inc. has been riding high on the current economic boom, raising its room rates and managing more hotels to take advantage of consumers’ seemingly insatiable appetite for leisure these days.
But Marriott officials, and analysts who track the company, agree that the good times cannot last.
“The economy cannot stay this hot forever,” said Laura Paugh, vice president of investor relations for Marriott International Inc. “While our unit growth story is very much in tact, [rental rates are] bound to slow down as the economy starts to slow a little bit.”
Investors have been buying up stock in the Bethesda operator of Marriott, Courtyard, Ritz-Carlton and Renaissance hotels worldwide, riding what could be the tail end of the booming international travel industry.
“Most people believe the economy can’t keep up this torrid pace of 4 [percent] to 5 percent [gross domestic product] growth,” said David Anders, analyst for Merrill Lynch & Co. in a statement.
The company has been selling its stock in the low-to-mid-$30-per-share range for the past year and a half.
Then, it took a dramatic upturn into the $40-per-share range during the third quarter when the company raised its rates to take advantage of increased consumer spending.
The company reported net income for its third quarter ended Sept. 8 rose 15 percent to $110 million (43 cents per diluted share), a measure of a company’s profit per share, from $96 million (36 cents) for the like quarter last year, while the company’s sales rose 15 percent to $2.3 billion from $2 billion.
Marriott enjoyed its 52-week high, as well, during its third quarter this year, at $42.37 per share on July 28.
Eleven out of 13 analysts that follow the company, according to Bloomberg, suggest buying the stock, which closed on the New York Stock Exchange Friday at $35.87.
“The industry on the whole has been doing really well, but I know with Marriott this past summer, they had record number of business travelers and the number of people traveling on vacation,” said Bryan Paul, analyst for PNC Advisors.
“The more important issue is unit expansion, to keep that brand growing,” Ms. Paugh said. “We’ve made some tremendous strides in adding units. That’s been a really key part of our story, and that has helped our stock all year.”
It also opened new hotels in Seoul, South Korea; Shanghai and Philadelphia.
“The company is on the right path with the leadership they have in the market,” Mr. Paul said.
They have a strong business development plan, they have the brand recognition and a global impact, he said.
“We think they are well positioned for the future, but I do think that high oil prices are going to [affect] the industry,” Mr. Paul added, even though consumer spending hasn’t slowed significantly.
Planning for the future, the company believes, will sustain it through almost any economic climate.
The company in the next year plans to complete a new Ritz-Carlton hotel in Istanbul and two Marriott hotels, one in Jordan and one in Bucharest, Romania.
“I like their global diversification,” Mr. Paul said. Marriott’s international investment, he contended, is projected to do well in the coming year.
On the home front, the company, which already manages 59 hotels in metropolitan Washington, is adding two more hotels in town, one Ritz-Carlton on M Street and another in Georgetown.
The company planned to add 175,000 more rooms between 1999 and 2003. It has already added 70,000 new rooms in Asia, Europe and the United States.