Marriott's Growth Story Still Charms Despite Global Challenges: Morgan Stanley's Investor Day Recap

Morgan Stanley analyst Stephen W Grambling reiterated an Overweight rating on the shares of Marriott International Inc MAR with a price target of $225.

At the investor's day, MAR's management noted that the strong near-term demand trends position them to deliver the high end of 2023 guidance ($8.65 EPS versus MSe/Cons $8.84/ $8.65).

In addition, the company outlined a long-term path to $5.195 billion - $5.655 billion in EBITDA (Cons $5.308 billion), $10.10-$11.45 in EPS (Cons $11.09), $2.6 billion - $2.9 billion in FCF in 2025.

The analyst has tweaked the estimates on the back of the event to incorporate slightly higher rooms growth offset by slightly lower royalty rates to take into account some mix shift impact to international markets.

The analyst's new $11.66 2025 EPS estimate differs from management's view due to greater royalty rate expansion and partly offset by room growth at the low end of the range. 

While investors may push back on accelerating room growth, the analyst believes the company could see support from contractual royalty increases or heightened conversion activity as it pushes various new midscale brands. 

Despite the midscale expansion efforts, luxury remains a focus as those brands account for 10% of overall portfolio rooms and generate 20% of hotel related fee revenues for MAR, opined the analyst.

The company currently has about 105,000 rooms in the pipeline in China and 75% of those rooms are under construction, with the country being a key growth market, said the analyst.

Despite fears about the macro and the property sector in China, management is encouraged by the recovery of development, noting a significant uptick in discussions, MoU execution, and development committee submissions, noted the analyst.

The analyst continues to like the risk-reward in the stock despite mounting macro fears in the U.S. and China, given the high visibility of fee growth and limited operating leverage.

Price Action: MAR shares are trading higher by 2.84% at $199.38 on the last check Thursday.