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Investment idea - Marriott

Marriott International (MAR), a leading hospitality company, released strong results for Q4 214. According to the report, quarterly revenue increased by 10.6% y-o-y to USD 3.56 bn, outpacing the consensus by 2.4% on improved numbers in all segments. Amid growing demand, Marriott reported substantial growth of occupancy rates in both the US and foreign markets, and also raised room rates. As a result, RevPAR (revenue per available room per day) climbed 6.0%. Adjusted EBITDA went up 19.6% to USD 384 mn, while EBITDA margin improved 0.8 pp to 10.8%. Adjusted EPS amounted to USD 0.68 (+38.8% y-o-y), 4.8% above analysts’ average estimates. The company put into operation 70 facilities with 14,605 rooms. As a result, the company currently runs 4,175 hotels (+6.6% y-o-y) with over 714,000 rooms (+5.8% y-o-y). The company generates significant cash flows, allowing Marriott to pay out generous dividends and buy back its own shares. Dividend amounted to USD 0.20 (+18% y-o-y), which matches a 1.3% dividend yield. The company bought back its own shares worth USD 544 mn. In line with the company’s updated FY15 guidance, adjusted EPS is projected at USD 3.00 to USD 3.12, which implies upside potential of 18-23%.

Longer term, we think that Marriott’s future prospects remain optimistic as the global economic recovery will gradually promote higher hotel demand worldwide. The company recently voiced its resolve to open up 1,300 new hotels with 235,000 rooms until 2017. As a result, the total number of Marriott’s hotels should exceed 5,000, and management forecasts RevPAR to grow 4-6% per year from 2015 to 2017. Adjusted EPS should reach USD 4-4.60 by 2017, i.e. annual average growth of 19-23% over the next three years.

We raised our target price for Marriott shares to USD 90, and reiterate our Buy recommendation for the name in the mid-term. The short-term technical target is USD 85.