Here's Why You Should Retain Marriott in Your Portfolio

Marriott International, Inc. MAR is likely to benefit from solid leisure demand, a loyalty program and unit-expansion efforts. The focus on hotel conversions bodes well. However, soft demand in China is a concern.

Let us discuss the factors that highlight why investors should retain the stock for now.

Growth Catalysts

Marriott has been gaining from pent-up leisure demand. In second-quarter 2024, the company posted RevPAR growth across all customer segments — group, leisure transient and business transient — with increases in room nights and ADR. Group business, accounting for 24% of worldwide room nights, remained the strongest segment, with group RevPAR up 10% year over year.

The company witnessed robust demand during second-quarter 2024. The company's net rooms grew 6% year over year. In comparison, global RevPAR increased nearly 5%, supported by a 3% rise in the average daily rate and an occupancy increase of approximately 150 basis points, reaching 73%.

MAR's global RevPAR index continues to rise, reflecting its strong position in the market. RevPAR in the United States and Canada saw a nearly 4% gain, aided by the shift of the Easter holiday, with all chain scales from select service to luxury reporting positive growth. Internationally, RevPAR rose more than 7%, led by a 13% increase in Asia Pacific (excluding China). The upside was backed by robust macro trends and increased cross-border travel, particularly from Mainland China. Japan, in particular, saw a 21% rise in RevPAR. The EMEA region reported nearly 10% growth, while CALA posted a 9% increase. The company expects global RevPAR to rise 3-4% year over year in the second quarter and full year in 2024.

The company continues to enhance its Bonvoy loyalty program, which now has more than 210 million members (as of second-quarter 2024). It launched Business Access by Marriott Bonvoy, a comprehensive online travel program targeting small- and medium-sized corporate clients. The initial adoption of the platform exceeded expectations. In addition, partnerships with Rakuten in Japan, Alibaba in China and Rappi in CALA continue to drive strong international Bonvoy enrollments. During the second quarter, the program's global room night penetration reached 71% in the United States and Canada and 65% worldwide.

Marriott's global portfolio continues to grow faster than the overall industry supply, adding approximately 15,500 net rooms in the second quarter. Signing activity remains strong, particularly in APEC and Greater China, contributing to a pipeline of more than 559,000 rooms. Conversions played a significant role, representing 37% of openings and 32% of signings. Construction starts in the United States and Canada rose 40% year over year in the second quarter, reflecting growing development momentum. It expects positive development trends to continue on the back of new development and multiunit conversion opportunities.

Concerns

Image Source: Zacks Investment Research

Marriott's shares have declined 4.8% in the past three months compared with the industry's 0.8% fall. Softer domestic demand in China primarily caused the downside.

During the second quarter, the company posted dismal performance in China. RevPAR in Greater China dropped approximately 4% due to macroeconomic pressures that led to weaker domestic demand. Additionally, the region saw an uptick in outbound high-end travelers, which further impacted local markets. While there was positive RevPAR growth in Tier 1 cities like Hong Kong, Macau and Taiwan, these gains were offset by declines across other areas, particularly in Hainan, which experienced a meaningful downturn. The company is cautious about persistent softness in demand and pricing trends in China for the remainder of 2024.

Our Thoughts

Marriott offers a balanced mix of growth opportunities and challenges, making it a stock worth holding. Its impressive global RevPAR growth, robust loyalty program and strategic room additions position it for long-term success. MAR's continued focus on high-growth regions and conversion deals underscores its ability to maintain market leadership and capitalize on leisure demand trends.

However, investors should remain cautious due to the company's exposure to weaker domestic demand in China, which could put pressure on overall performance. Additionally, Marriott's current valuation — with a forward P/E ratio of 22.05X compared with the industry's 21.80X — suggests premium pricing that might limit significant upside potential in the near term. While these risks warrant attention, the company's solid fundamentals and strategic growth initiatives provide enough reasons for investors to retain the stock. The Zacks Rank #3 (Hold) justifies our thesis.

Key Picks

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The Zacks Consensus Estimate for MCRI's 2024 sales and EPS indicates an increase of 2.3% and 10%, respectively, from the year-ago levels.

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