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Will Marriott (MAR) Surprise Earnings Estimates in Q2? - Analyst Blog

Zacks Equity Research
Updated

Marriott International, Inc. MAR is set to report second quarter 2015 results on Jul 29, after the markets close. Last quarter, the company delivered a positive earnings surprise of 4.29%. In fact, the company has beaten the Zacks Consensus Estimate in all the trailing four quarters.  Let’s see how things are shaping up for this announcement.

Factors to Consider

Given Marriott’s property locations and strong brand recognition, the company is well positioned to benefit from higher demand on the back of stepped-up business traveling in major North American and key international locations. Driven by improved group demand, low supply growth environment and greater pricing power, the company is expected to continue to witness strong RevPAR growth.

The company expects worldwide comparable system-wide RevPAR and comparable system-wide RevPAR in North America to increase in the range of 5% to 7%. International system-wide RevPAR is expected to increase in the range of 3% to 5%.

Meanwhile, the company is capitalizing on digital innovation and social media, which is driving hotel bookings. Owing to higher year-over-year revenues from greater demand and growth in room rates, Marriott has been posting strong operating margins over the past few years. Given the continuous improvement in margins since 2014, we expect the trend to continue in the soon-to-be reported quarter. Marriott expects earnings per share in the range of 78 cents to 83 cents per share, up from the year-ago figure of 71 cents per share.

However, besides expanding in the domestic market, it continues to expand its presence worldwide, which makes it vulnerable to the economic conditions in the region. Despite immense growth potential, a sluggish economy in Brazil and Argentina is weighing on demand in these regions. Moreover, lingering political uncertainty, sluggish economy and other such issues in the regions where it operates pose a threat to its top line.

Also, negative foreign currency impact would hurt profits of the company in the soon-to-be reported quarter. While a strong dollar is reducing the value of its international sales, peso devaluation and abrupt weakening of the yen, the Aussie dollar, rupee and the rupiah have been headwinds for the company. Moreover, the company is also bearing the brunt of Venezuelan currency devaluation. Such volatility in exchange rates is expected to hurt RevPAR in the to-be reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Marriott International is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is 0.00% as the Most Accurate estimate as well as the Zacks Consensus Estimate stand at 81 cents.

Zacks Rank: Marriott International has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement.

Stocks to Consider

Here are some other companies in the broader consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Caleres, Inc. CAL with an Earnings ESP of +6.67% and a Zacks Rank #1 (Strong Buy).

Electronic Arts Inc. EA with an Earnings ESP of +22.22% and a Zacks Rank #1.

Guess' Inc. GES with an Earnings ESP of +6.67% and a Zacks Rank #1.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>



 


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
MARRIOTT INTL-A (MAR): Free Stock Analysis Report
 
GUESS INC (GES): Free Stock Analysis Report
 
ELECTR ARTS INC (EA): Free Stock Analysis Report
 
CALERES INC (CAL): Free Stock Analysis Report
 
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Zacks Investment Research