Company Reports

Following its partnership with no-moat MGM’s Las Vegas portfolio in July 2023, Marriott announced a 20-year license agreement with Sonder on Aug. 19, 2024. The deal is set to add about 9,000 rooms to Marriott’s portfolio by the end of this year. As a result, we have increased our 2024 net unit growth to 6.3%, up from 5.8% prior, and lifted our fair value estimate to $223 per share from $221. We see shares as appropriately valued but wouldn’t require much discount to recommend shares of this industry-leading brand.

We expect Marriott's global share to increase further over the next several years, due to its strong intangible asset, source of its wide moat, which is endeared by both hotel owners and travelers. In the past few years, Marriott has renovated a meaningful percentage of core Marriott and Courtyard hotels, and since 2019, has added several new brands, which support our constructive stance along with a favorable next-generation traveler position. In fact, recent brands StudioRes, City Express, and Four Points, not only extend Marriott's reach into the midscale and extended-stay segments but could also add several hundred hotels each over the next several years. Additionally, its August 2024 partnership with Sonder adds about 10,000 rooms to a growing homes, villas, and apartments portfolio. Also, we see Marriott as having an industry-leading loyalty program, with 210 million members (as of June 30, 2024), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the 2016 acquisition of Starwood and 2023 partnership with MGM's Vegas portfolio has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio and MGM's leading presence in the gaming mecca complement Marriott's dominant upper-scale position in North America.

We expect Marriott's global share to increase further over the next several years, due to its strong intangible asset, source of its wide moat, which is endeared by both hotel owners and travelers. In the past few years, Marriott has renovated a meaningful percentage of core Marriott and Courtyard hotels, and since 2019, has added several new brands, which support our constructive stance along with a favorable next-generation traveler position. In fact, recent brands StudioRes, City Express, and Four Points, not only extend Marriott's reach into the midscale and extended-stay segments but could also add several hundred hotels each over the next several years. Also, we see Marriott as having an industry-leading loyalty program, with 210 million members (as of June 30, 2024), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the 2016 acquisition of Starwood and 2023 partnership with MGM's Vegas portfolio has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio and MGM's leading presence in the gaming mecca complement Marriott's dominant upper-scale position in North America.

Marriott’s shares dropped 5% during July 31 trading, as China’s second-quarter revenue per available room, or revPAR, declined 4%, versus 6% growth in the prior quarter, under the weight of weaker economic growth in the region. We plan to lower our near-term revPAR by around half a percentage point to account for China’s weakness and believe wide-moat peers Hilton and InterContinental could see a similar affect. Looking beyond 2024, assuming around 2% US GDP growth on average the next few years, we continue to see about 3.5% annual revPAR growth, which matches the long-term performance for the US hotel upscale industry. As a result, we don’t expect to meaningfully change our $224 fair value estimate. We see shares as fairly valued.

We expect Marriott's global share to increase further over the next several years, due to its strong intangible asset, source of its wide moat, which is endeared by both hotel owners and travelers. In the past few years, Marriott has renovated a meaningful percentage of core Marriott and Courtyard hotels, and since 2019, has added several new brands, which support our constructive stance along with a favorable next-generation traveler position. In fact, recent brands StudioRes, City Express, and Four Points, not only extend Marriott's reach into the midscale and extended-stay segments but could also add several hundred hotels each over the next several years. Also, we see Marriott as having an industry-leading loyalty program, with 203 million members (as of March 31, 2024), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the acquisition of Starwood (closed in September 2016) and partnership with MGM's Vegas portfolio (signed in June 2023) has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio and MGM's leading presence in the gaming mecca complement Marriott's dominant upper-scale position in North America.

There won’t be much change to our $220 fair value estimate for narrow-moat Marriott International after the hotelier posted first-quarter revenue per available room growth of 4% versus our 4% estimate and management’s 4%-5% guidance. We caution against overreacting to Marriott’s comments that US leisure and China revPAR might come in slightly lighter than previously expected over the rest of this year; both are still set to grow in 2024 and remain at all-time highs, signaling normalization in demand versus deterioration, in our view. Further, management now anticipates rest-of-the-world revPAR will come in stronger than previously thought, with both business and group growing globally this year. As a result, Marriott reiterated its 2024 revPAR growth guidance of 3%-5%, and we plan to lift our 3.5% forecast to around 4%.

We expect Marriott's global share to increase further over the next several years, due to its strong intangible asset, source of its wide moat, which is endeared by both hotel owners and travelers. In the past few years, Marriott has renovated a meaningful percentage of core Marriott and Courtyard hotels, and since 2019, has added several new brands, which support our constructive stance along with a favorable next-generation traveler position. In fact, recent brands StudioRes, City Express, and Four Points, not only extend Marriott's reach into the midscale and extended-stay segments but could also add several hundred hotels each over the next several years. Also, we see Marriott as having an industry-leading loyalty program, with 196 million members (as of Dec. 31, 2023), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the acquisition of Starwood (closed in September 2016) and partnership with MGM's Vegas portfolio (signed in June 2023) has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio and MGM's leading presence in the gaming mecca complement Marriott's dominant upper-scale position in North America.

We see little reason to materially change our Marriott $217 fair value estimate after the company reported a fourth-quarter revenue per available room, or revPAR, lift of 7% (in line with our estimate), adjusted EBITDA of $1.2 billion ($1.15 billion), and gave 2024 revPAR growth guidance of 3%-5% (3.5%). In our view, the 5% pullback in shares is a function of elevated expectations with the stock up 12% year to date and trading about 15% above our valuation before the earnings call, as well as concerns that travel demand is weakening given guidance for 2024 revPAR to decelerate from 2023's 15% rate. On the latter point, we see decelerating growth as expected and a natural evolution back to normalized levels after a strong recovery in 2020-23. While shares of travel companies could remain choppy the next few months as investors grapple with the industry's transition to normalized growth, we would not need much discount to our valuation to view shares of this wide-moat company as attractive.

We have upgraded Marriott, Hilton, and InterContinental’s moats to wide from narrow due to lasting brand edges for each. As a result of longer periods of economic profit in our discounted cash flow models, our fair value estimates increase to $217 from $190 for Marriott, $177 from $159 Hilton, and $84/GBX 6,600 from $74/GBX 6,100 for InterContinental.

We expect Marriott's global share to increase further over the next several years, due to its strong intangible asset, source of its wide moat, which is endeared by both hotel owners and travelers. In the past few years, Marriott has renovated a meaningful percentage of core Marriott and Courtyard hotels, and since 2019, has added several new brands, which support our constructive stance along with a favorable next-generation traveler position. In fact, the recent 2023 launches of the Spark and StudioRes brands not only extend Marriott's reach into the midscale and extended-stay segments but could also add several hundred hotels each over the next several years. Also, we see Marriott as having an industry-leading loyalty program, with 192 million members (as of Sept. 30, 2023), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the acquisition of Starwood (closed in September 2016) and partnership with MGM's Vegas portfolio (signed in June 2023) has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio and MGM's leading presence in the gaming mecca complement Marriott's dominant upper-scale position in North America.

While elevated inflation has the potential to hit near-term travel demand, we expect Marriott to expand room and revenue share in the hotel industry over the next decade. In the past few years, Marriott has renovated a meaningful percentage of core Marriott and Courtyard hotels, and since 2019, has added several new brands, which support our constructive stance along with a favorable next-generation traveler position. Also, we see Marriott as having an industry-leading loyalty program, with 192 million members (as of Sept. 30, 2023), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the acquisition of Starwood (closed in September 2016) and partnership with MGM's Vegas portfolio (signed in June 2023) has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio and MGM's leading presence in the gaming mecca complement Marriott's dominant upper-scale position in North America.

Marriott International’s third quarter saw strong demand. Revenue per available room was up 9%, ahead of management’s 6%-8% guidance, driven by all segments and key regions. As a result, Marriott raised its 2023 revPAR growth estimate to 15% from 14%; we plan to lift our prior 14% estimate to the new target. That said, while we have been steadfast on travel demand resiliency since the summer of 2020, we expect Marriott’s revPAR growth to decelerate to 3%-4% in 2024 (compared with its 3%-6% guidance), driven by mounting headwinds like lasting inflation and depleted consumer savings. Taking this together, we don’t plan much change to our $187 fair value estimate.

While elevated inflation has the potential to hit near-term travel demand, we expect Marriott to expand room and revenue share in the hotel industry over the next decade. In the past few years, Marriott has renovated a meaningful percentage of core Marriott and Courtyard hotels, and since 2019, has added several new brands, which support our constructive stance along with a favorable next-generation traveler position. Also, we see Marriott as having an industry-leading loyalty program, with 186 million members (as of June 30, 2023), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the acquisition of Starwood (closed in September 2016) and partnership with MGM's Vegas portfolio (signed in June 2023) has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio and MGM's leading presence in the gaming mecca complement Marriott's dominant upper-scale position in North America.

Marriott’s analyst day painted a mosaic of a strong brand (source of its narrow moat) that we think is set to continue to deliver sales and profitability growth over the next several years. We plan a minor single-digit percentage decrease to our $191 fair value estimate, as we temper near-term growth due to an uncertain economic landscape.

We plan to increase our Marriott fair value estimate to around $190 per share from $184 due to slightly higher 2023 demand and time value. We see shares as slightly overvalued.

While elevated inflation has the potential to have an impact on near-term travel demand, we expect Marriott to expand room and revenue share in the hotel industry over the next decade. In the past few years, Marriott has renovated a meaningful percentage of core Marriott and Courtyard hotels, and since 2007, has added several new brands, which support our constructive stance along with a favorable next-generation traveler position. Also, we see Marriott as having an industry-leading loyalty program, with 186 million members (as of June 30, 2023), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the acquisition of Starwood (closed in September 2016) and partnership with MGM's Vegas portfolio (signed in June 2023) has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio and MGM's leading presence in the gaming mecca complement Marriott's dominant upper-scale position in North America.

While elevated inflation has potential to impact near-term travel demand, we expect Marriott to expand room and revenue share in the hotel industry over the next decade. Our constructive stance is driven by a favorable next-generation traveler position supported by renovated and newer brands, as Marriott has added several new brands since 2007 and renovated a meaningful percentage of core Marriott and Courtyard hotels in the past few year. Also, we see Marriott having an industry-leading loyalty program, with 182 million members (as of March 31, 2023), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the acquisition of Starwood (closed in September 2016) has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio complemented Marriott's dominant upper-scale position in North America.

Narrow-moat Marriott's first quarter once again showcased resilient travel demand, with its revenue per available room, or revPAR, up 34% from a year ago, ahead of its 30%-32% guidance. This represented 106% of 2019's level, above our 102% forecast and the 102% reported in the previous quarter. Demand improved across all segments in the quarter, led by a 63% revPAR lift in international markets. Specifically, China revPAR growth was up a stout 78%, driven by travel restriction removals during the past few months. China revPAR was at 95% of 2019's level in the quarter, despite airlift capacity in the country measuring 20% in the quarter, as citizens traveled domestically via trains and cars.

While inflation has potential to impact near-term travel demand, we expect Marriott to expand room and revenue share in the hotel industry over the next decade. Our constructive stance is driven by a favorable next-generation traveler position supported by renovated and newer brands, as Marriott has added several new brands since 2007 and renovated a meaningful percentage of core Marriott and Courtyard hotels in the past few year. Also, we see Marriott having an industry-leading loyalty program, with 177 million members (as of fiscal 2022), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the acquisition of Starwood (closed in September 2016) has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio complemented Marriott's dominant upper-scale position in North America.

Narrow-moat Marriott's fourth-quarter revenue per available room, or revPAR, improved again to 107% of 2019's level from 105% in the prior quarter. And the hotelier expects further growth in 2023, with revPAR guided for a 6%-11% lift, harmonizing with our 8% estimate. We don't plan to materially alter our $180 fair value estimate, leaving shares appropriately valued.