On Tuesday, TD Cowen maintained its Buy rating on Marriott International (NASDAQ: NASDAQ:MAR) but reduced the stock's price target from $295.00 to $283.00. The adjustment reflects the analyst's response to Marriott's third-quarter performance and expectations for the future.
The company's third-quarter Revenue per Available Room (RevPAR) increased by 3%, meeting the lower end of their guidance, amid softer performance in the United States and China.
The forecast for the fourth quarter anticipates a 2-3% increase in RevPAR, including a 100 basis points impact from the election. The firm has also slightly decreased its 2024 EBITDA estimate by 1% due to higher General and Administrative (G&A) expenses and lower fees.
Despite these adjustments, the analyst's outlook for 2025 remains optimistic, with an expected increase in the number of units by approximately 4-5% based on a strong pipeline, compared to an adjusted 3.6% growth for 2024.
In addition to the future unit growth, management has announced a significant cost reduction plan, aiming to cut $80-90 million in G&A expenses. This cost-cutting measure is expected to contribute positively to the company's financials. The firm's 2025 EBITDA projection has been slightly raised to $5.41 billion, while the earnings per share (EPS) estimate has been marginally lowered to $10.48.
The new price target of $283.00 is based on a 27 times multiple of the firm's 2025 earnings per share estimate. This valuation reflects the analyst's continued confidence in Marriott's long-term growth potential despite the near-term challenges and adjustments to the company's financial projections.
In other recent news, Marriott International's third-quarter results showed a nearly 6% year-over-year increase in net rooms and a 3% rise in global revenue per available room. The company also launched a new mid-scale brand, City Express by Marriott, and reported a record 219 million members in its loyalty program. Despite challenges in Greater China and flat leisure demand, Marriott has implemented cost-saving initiatives and anticipates restructuring charges in the fourth quarter. These are the recent developments in the company's financial landscape.
BMO Capital Markets, Mizuho (NYSE:MFG) Securities, Baird, and Goldman Sachs (NYSE:GS) have all raised their price targets for Marriott, citing various factors such as cost-saving plans, algorithmic fee growth, and anticipated improvements in organic net unit growth. Goldman Sachs also highlighted a new cost-saving initiative expected to generate $80-$90 million in savings in the next year.
Despite Marriott's third-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings per share (EPS) falling short of expectations, the revenue per available room (RevPAR) environment is viewed as relatively stable. The company's fourth-quarter guidance was described as soft, with various factors contributing to the tempered outlook. However, these challenges are expected to be balanced by the company's cost-savings initiatives aimed at 2025.
InvestingPro Insights
To complement TD Cowen's analysis, recent data from InvestingPro offers additional perspective on Marriott International's financial position. The company's market capitalization stands at $72.19 billion, reflecting its significant presence in the hospitality industry. Marriott's P/E ratio of 27.21 aligns closely with the multiple used by TD Cowen for their price target calculation, suggesting a consistent valuation approach across different analysts.
InvestingPro Tips highlight Marriott's impressive gross profit margins, which is supported by the data showing a gross profit margin of 81.95% for the last twelve months as of Q3 2024. This robust profitability metric underscores the company's operational efficiency, even as it navigates challenges in key markets like the U.S. and China.
Another relevant InvestingPro Tip notes that Marriott has been aggressively buying back shares. This strategy, combined with the announced cost reduction plan, demonstrates management's commitment to enhancing shareholder value and improving financial performance.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Marriott International, providing a deeper understanding of the company's financial health and market position.
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