It doesn't take the most astute market analyst to understand that it's a pretty good time to be a hotel company. Business and leisure travel have rebounded sharply, occupancy is on the rise, and anyone who has visited InterActive Corp's
Earnings per share are forecast to grow at a 17%-to-22% compounded annual clip over the next few years. To get there, Marriott will add 75,000 to 90,000 rooms to the 485,000 it already boasts in its worldwide hotel system. About 20% of the new rooms will be conversions from competitors' brands, and one-fourth will be located in overseas markets. Marriott is particularly eager to expand its presence in Europe and Asia, where it posted gains in revenue per available room (RevPAR) of 7% and 15.2%, respectively, last quarter.
While reaffirming an expected overall RevPAR improvement of 8% to 10% this year, management also expressed confidence that it could sustain further growth rates of 4% to 8% going forward. At the low end of that outlook, the base management fees, franchise fees, and incentive fees that Marriott receives for operating its properties are projected to reach $1.37 billion, lifting earnings to $3.75 per share (from $2.48 last year). If the company can deliver the most optimistic targeted growth rates, then earnings could rise to as high as $4.50 per share.
Meanwhile, Marriott's rivals are also adding capacity and issuing upbeat forecasts. On the heels of spectacular first-quarter results, Hilton
After a multiyear downturn, Marriott is riding the recovery in the cyclical lodging industry to new highs. Much of the firm's fee revenue is a function of RevPAR, and even at the mid-range of yesterday's guidance, incentive fees should soon surpass pre-9/11 levels. Last quarter, these fees, which are tied to property profitability, jumped 52% to $50 million. All told, the rising fee revenue should generate copious cash flows of more than $3 billion, which the company will use to fund stock repurchases and modernize many of its rooms.
Barring an unforeseen event that leads to a widespread disruption in travel, Marriott has a good shot at achieving its lofty goals. Its popular brands -- which include the upscale Ritz-Carlton -- are adding new properties, its pricing power is going nowhere but up, and its timeshare operations are growing steadily.
Investors who are thinking about checking in, though, will find that Marriott's room rates are not the only thing on the rise, as the firm's shares have advanced into select territory.
Here are a few more options from the Fool's room-service menu:
Fool contributor Nathan Slaughter owns none of the companies mentioned.