Can Marriott Improve Its Margin after the Starwood Acquisition?
For 2Q17, analysts are estimating Marriott’s (MAR) EBITDA1 to grow 63.1% year-over-year (or YoY) to $805.8 million. Its 3Q17 EBITDA is expected to grow 68.3% YoY to $797.9 million. In 4Q17, its EBITDA is expected to rise 5.0% YoY to $794.2 million.
As we discussed in the previous article, the growth in the first three quarters of 2017 could be attributed to the consolidation of Starwood’s financials with Marriott.
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Some growth could also come through EBITDA margin expansion, achieved by cost savings from the merger. For 2Q17, Marriott’s EBITDA margins are expected to expand to 14.4% from 12.7% in 2Q16. For 3Q17, its EBITDA margins are expected to expand to 14.9% from 12.6% in 3Q16 and to 14.1% in 4Q17 compared to 13.9% in 4Q16.
For fiscal 2017, Marriott’s EBITDA is expected to rise 44.3% to ~$3.1 billion. Its EBITDA margins are expected to expand to 14.2% compared to 12.9% in 2016.
Marriott (MAR) expects its profitability to improve as a result of the cost synergies resulting from the Starwood merger. Management expects its 2Q17 adjusted EBITDA to increase 3%–5% YoY to $795 million–$815 million.
Marriott expects the merger with Starwood to result in savings of $175 million–$185 million in 2017. These savings are expected to increase to $250 million annually in 2018 onward.
These savings could lead to 2017 adjusted EBITDA growth of 4%–7% YoY to about $3.1–$3.2 billion. The forecast is higher than Marriott’s earlier estimate of 3%–6% growth, which could lead to EBITDA of about $3.1 billion–$3.2 billion. This trend is due to better-than-expected 1Q17 earnings and could result in organic growth, excluding the impact of the Starwood acquisition.
Marriott’s operating income is expected to increase to $2.4 billion–$2.5 billion, which is higher than the earlier estimate of $2.3 billion–$2.4 billion. Its earnings per share (or EPS) could grow to $3.92–$4.09 compared with the earlier estimate of $3.79–$3.97.
Investors can gain exposure to the hotel sector by investing in the First Trust Consumer Discretionary AlphaDEX ETF (FXD), which invests ~15.0% in the hotel, restaurant, and leisure sector. FXD invests 1.1% each in Wyndham (WYN) and Marriott International (MAR), and it invests 0.55% of its portfolio in Hyatt (H). However, this ETF has no holdings in Hilton Worldwide Holdings (HLT).
- earnings before interest, tax, depreciation, and amortization ↩