Marriott International — How to Play Wednesday’s Earnings Report

by Jamie Dlugosch | October 5, 2011 12:10 pm

Hotel company Marriott International (NYSE:MAR[1]) reports earnings for the quarter ending Sept. 30 on Wednesday after the market closes. The report will give investors an early read on the overall third-quarter earnings season. Given the expectation of an economic slowdown, more will be looking at guidance instead of actual results.

Swirling economic headwinds have created challenging operating conditions for Marriott. Granted, the higher oil prices seen early in the year are softening — of course, the reason oil prices have fallen is because of a global fear of recession. But, as of mid-July, a hotel trade group expected travel to hold firm for the rest of the year[2].

Support of that forecast comes in the form of tight capacity from air carriers. Planes are flying full, and many of those passengers need to stay in hotels. That should bode well for Marriott International.

Earnings at Marriott International have been mixed during the past four quarters:

Marriott International

Marriott International met expectations for the period ending June 30, but the company reduced guidance for the year with that report. For the full year, the company expected profit to fall in a range of $1.35 to $1.43 per share. It also noted a drop in closely watched room revenue.

At the time of the reduced guidance, Wall Street estimates for the year were at $1.41 per share for MAR. Today, the average Wall Street profit estimate for the year is at $1.39 per share. In the following year, profits are expected to grow by 24% to $1.72 per share. At current prices, shares of Marriott International trade for 20 times current-year estimated earnings.

Marriott International
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Since the time of the reduced guidance, shares of Marriott International have dropped significantly. The stock is down 21% since July 14. Prior to those losses, the stock was flat across the previous 12 months.

Although the company reduced expectations in its last report, I expect the company to beat expectations in the current quarter. Demand for travel still is strong, as evidenced by planes flying at capacity. There is no indication that an economic slowdown will negatively impact performance.

Marriott International should get a slight bounce with a good report. With shares trading for a multiple of earnings slightly below estimated profit growth, the stock has some room to appreciate from here. That said, it would seem to be prudent for management to be cautious when it reports results after the market closes Wednesday.

At best, the company will reaffirm guidance for the year. That should be enough for the stock to reverse course. If the report is stronger than expected and guidance improves, shares could move significantly higher.

Other companies reporting results this week include Helen of Troy (NASDAQ:HELE[3]) and Constellation Brands (NYSE:STZ[4]).

As of this writing, Jamie Dlugosch did not own a position in any of the aforementioned stocks.

  1. MAR:
  2. expected travel to hold firm for the rest of the year:
  3. HELE:
  4. STZ:

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