Summary
- We think Marriott is overvalued by about $30 to $40 per share.
- Marriott may face a credit downgrade because it failed to meet critical ratings agency concerns in full year 2020.
- There will not be a "return to normal," post-pandemic. It will be a whole new normal where group and business travel will be circumscribed by corporate budgets and new tech.
- Macroeconomic effects we discuss will lower RevPAR for the foreseeable future.
- Marriott needs to adopt a Zero Base Budget approach to reduce HQ and property level expenses and off-load some of its company-owned hotels to reduce debt.
NEW YORK (March 30) - Those who follow me on Marriott (MAR) stock know I have been an unabashed fan of the Marriott system, both as a guest (most of my adult life) and since we started coverage of them in February 2016 when the stock was around $66/share. Since then, Marriott has out-performed the S&P 500 by about 18 percentage points, according to SA charts in the rightmost column of the article.
That’s not to say I have not been circumspect about the investment value of MAR stock in those years. More than once in our coverage of the lodging giant, I have stepped back to re-assess Marriott, mostly in light of macroeconomic factors but also at least once because of a fear that the stock price was too high on speculation that was not yet supported by performance or forward earnings.
We also warned about the danger to Marriott of revenue losses in parts of the group and business segments, even in the aftermath of COVID-19, as Zoom (NASDAQ:ZM) and other remote meeting software apps became ubiquitous and normalized.
Unfortunately, we again fear that that the stock price is too high now, too, and that market expectations of forward earnings are too optimistic. (Marriott stopped offering forward earnings guidance shortly after the start of the pandemic.) Given the reporting of full year 2020, it’s time to reassess.
RIP Arne Sorenson
Arne Sorenson, the first Marriott CEO who was not a member of the Marriott family, was, perhaps, the best service-business CEO of the last 20 years. Marriott’s CEO for about 13 years, he had previously held, since 1996, various mission-oriented executive positions in the company. Prior to that, he had been outside counsel to the company. He had a masterful command of MAR, as evidenced in his erudite performance in earnings calls and questions. (I saw him address crowds of analysts at Marriott’s annual investor conference, for example, without a podium and with just the notes written on the back of an envelope.)
Sorenson conceived and executed Marriott’s “asset- light” strategy, in which Marriott off-loaded its trophy properties to franchisees and concentrated on building cash flows. He emphasized “the brand, not the bricks” as someone put it. And as an M&A attorney, he took Marriott through the Marriott-Starwood merger. Finally, he was well-liked and well-respected by Marriott executives and its board, as evidenced in the 2020Q4 earnings call. Sorenson’s loss to cancer in February of this year was certainly a blow to the company.
