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Vivek Kumar
Marriott on the hotel

Marriott International, an American multinational diversified hospitality company, said its net income plunged to $100 million in the third quarter as the COVID-19 pandemic affected hotel bookings, sending its shares down about 1% in pre-market trading on Friday.

The U.S. hotel operator said its operating income totalled $252 million, compared to 2019 third-quarter reported operating income of $607 million. Reported net income totalled $100 million in the 2020 third quarter, compared to 2019 third quarter reported net income of $387 million.

Marriott reported diluted earnings per share totalled $0.31 in the quarter, compared to reported diluted EPS of $1.16 in the year-ago quarter.  Third-quarter adjusted diluted EPS totalled $0.06, better than the market expectations of -$0.08 per share.

“The better than expected quarter reflects some key progress toward recovery, which we believe is critical for the next few quarters. Pending commentary on the call, we expect further insights on progress toward near-term and longer-term positioning of the business,” said David Katz, equity analyst at Jefferies, who gave a price target of $125.

“Nonetheless, we expect the Street to focus on the asset-strength in the brand infrastructure and the fees they generate. We expect a neutral to a modestly positive reaction in the shares.”

But Marriott International shares fell about 1% to $99.95 in pre-market trading on Friday; the stock is down about 33% so far this year.

Executive Comments

“During the third quarter, we added more than 19,000 rooms to our system, nearly 70% more than were added in the second quarter, achieving 5% gross rooms growth in the last 12 months. At quarter-end, approximately 228,000 rooms of our more than 496,000-room pipeline were under construction. Progress on projects under construction largely continues apace around the world, although we have designated a slightly higher number of projects on hold given macroeconomic uncertainty and discussions with our owners,” said Arne M. Sorenson, president and chief executive officer of Marriott International.

“For full-year 2020, we now expect 2.5 to 3% net rooms growth, including terminations of 1.5 to 2%. Assuming progress is made in containing COVID-19, we would expect gross room additions in 2021 to accelerate compared to our expectations for 2020,” Sorenson added.

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Marriott International Stock Price Forecast

Eleven equity analysts forecast the average price in 12 months at $100.80 with a high forecast of $115.00 and a low forecast of $90.00. The average price target represents a -0.11% decrease from the last price of $100.91. From those 11 analysts, three rated “Buy”, eight rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $93 with a high of $154 under a bull-case scenario and $65 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the lodging company’s stock. Berenberg raises target price to $95 from $81.

Several other analysts have also recently commented on the stock. BMO Capital Markets raised Marriott International to a market perform rating from an underperform and increased their target price to $95 from $83. Citigroup increased their target price to $110 from $95 and gave the company a neutral rating.

Analyst Comments

“Largest hotel brand company globally creates economies of scale, but the spread of COVID-19 will pressure unit growth. We expect several $100M working capital headwinds related to timing mismatches between owners paying Marriott International (MAR) and MAR paying out expenses, but this should be temporary,” said Thomas Allen, equity analyst at Morgan Stanley.

“With the stock trading near its historical avg multiple, we see too wide a risk-reward to justify recommending, with upside/downside driven by how severe and quick business trends return to normal post-COVID-19.”

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