- Marriott International announced plans to open some 1,700 new hotels by 2021.
- The expansion would represent at least a 25 percent increase in the number of locations and a 22.7 percent boost in the number of rooms.
- The planned expansion is expected to come along with as much as $11 billion in share buybacks and dividends paid out over the same period.
Take that, Airbnb. Marriott International — the massive hotel group that includes some 30 different hotel brands like Ritz-Carlton, St. Regis and Sheraton — announced on March 18 that it would be opening some 1,700 new hotel locations and up to 295,000 rooms by 2021. The company also announced plans to return as much as $11 billion to shareholders through a combination of dividends and share buybacks over that same period.
That’s a Marri-Lot of New Hotels
Marriott is already a hotel leviathan, with more than 6,000 locations and nearly 1.3 million rooms to its name as of 2018. However, that would still make the planned expansion at least a 25 percent increase in the number of locations and a 22.7 percent increase to the number of rooms.
This could very well leave Marriott way out in front as the largest hotel chain by capacity. One of Marriott’s main competitors — Hilton Worldwide Holdings — has approximately 913,000 rooms across 5,600 properties, while less expensive brands like Choice Hotels have a comparable number of locations — 6,800 — but only about 500,000 rooms at its smaller, discount brands like Sleep Inn, Quality Inn or Econo Lodge.
“Our new three-year plan, with Starwood fully integrated, demonstrates how our fee-based, asset-light business model generates even stronger and more sustainable cash flows. This allows us to invest profitably in our core business at high rates of return and also return significant amounts of capital to shareholders,” said Leeny Oberg, Marriott’s executive vice president and CFO, in the company’s press release. “Our proven business model combined with opportunities to leverage our significant scale from the Starwood acquisition uniquely position us for additional shareholder value creation.”
Marriott International also reported that the new three-year plan means the company is projected to produce earnings of $7.65 to $8.50 a share by 2021, a compound growth rate of 11 to 15 percent. And the plans for that additional cash flow appear to be geared toward investors, with $9.5 billion to $11 billion slated to come back to them over that period. That includes a projected $1.9 billion to $2 billion in dividends and $7.6 billion to $9 billion in share buybacks.
Is Now the Time for Investors to Book a ‘Stay’ With Marriott?
Anyone considering an investment in Marriott is likely looking at this new development with considerable interest. The stock had a rough 2018 after peaking at close to $150 a share in January of that year, only to fall off sharply before beginning to recover in mid-December. Its current market cap of just under $43 billion dwarfs that of Hilton Worldwide’s roughly $25 billion. Meanwhile, Choice Hotels’ $4.3 billion figure barely registers.
As such, investors seeking out a stable stock in an industry-leading position might find Marriott International to be a compelling prospect. The company’s P/E ratio of 23.43 positions it as being at a fair price, while the PEG ratio of 1.12 suggests it’s also priced well for its projected growth. Throw in a huge 65.68 percent return on equity and this would appear to be one company where management has a solid plan for turning its assets into profits.
However, all of that comes in the context of whether or not this massive new expansion will prove successful in the long run. Growing their locations by a quarter represents a major investment — and one that clearly comes with some risk. With concerns about global growth roiling markets, Marriott could be planning a major expansion just in time for a recession that could seriously hurt its bottom line, especially if it’s underestimating consumer demand.
That said, Marriott’s management has most likely considered this and factored it into plans, so the question is whether or not their projections pan out as hoped. And for investors, where you fall on that key question is likely going to wind up being the defining aspect of any potential investment thesis for Marriott International.
Read on to find out how to keep your emotions from messing with your investing strategy.
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