On the face of it, Marriott International (NYSE:MAR) gave investors a great earnings report. The company posted a resounding beat on earnings and more than doubled its year-over-year revenue; although falling slightly short of analysts’ expectations.
And for a moment, MAR stock looked like it was going to push past a point of resistance that has kept the company’s stock growth in check. However, the stock suddenly gapped down and in midday trading, Marriott is posting a loss of around 3%.
The problem for Marriott is one of expectations. The stock has rewarded opportunistic investors who bought the pandemic-induced dip in 2020. Specifically, if you bought MAR stock on April 3, 2020 you would have a gain of 137.5%.
However, if you had waited to buy the stock at the beginning of 2021, your gain prior to the release of this quarter’s earnings report would be just 16%, roughly in line with the S&P 500 Index. Investors have to determine if the slowing growth will continue.
Putting the Puzzle Together With Missing Pieces
As expected, Marriott is benefiting from a surge in consumer travel. The pent-up demand that was expected with consumers sitting on savings and stimulus has come to pass. In the interest of full disclosure, I’ve stayed at a couple of Marriott properties at different times in the last 18 months.
And with 70% of U.S. adults having received at least one vaccination, consumer demand should stay strong. That’s reflected in revenue that climbed from $1.46 billion a year ago to $3.15 billion.
However, 2020 makes for a relatively easy comparison. Going back two years to the same quarter in 2019, revenue was $5.31 billion.
This reflects in large part the absence of the business traveler. This is the missing piece of the puzzle. But the problem is that there’s no guarantee that the puzzle is going to show the same picture when it gets put back together.
For its part, Marriott offered guidance that was optimistic that business travel would pick up in the fall. On the company’s earnings call, CEO Anthony Capuano said, “We anticipate that more workers returning to their offices on a hybrid basis will serve as a catalyst for a meaningful increase in business transient and group demand in the fall.”
However, those prepared remarks likely don’t factor in the concerns (real or imagined) that are being created by the Delta variant. In just the last 48 hours, some businesses are rethinking plans to have employees come back to the office after Labor Day.
And that’s just domestic travel. One of the reasons institutional investors were excited about MAR stock in March was their expansion into international markets. However, international travel remains stalled. Anecdotally, I have several friends who used to travel routinely overseas who are effectively grounded. And they say it’s unlikely that they will resume traveling until 2022.
Paying Tomorrow’s Price Today
If you take a closer look at the Marriott stock chart, you’ll see that investors are paying about 10% more for a share at the time of this writing (about $140) than they were at the same time in 2019 when the company was delivering over $2 billion more in revenue and more than double the earnings.
Some bullish investors may point to the company’s suspended dividend as a reason to anticipate a higher stock price. Fair enough, but Marriott’s dividend was never a major selling point for the stock.
Marriott Is a Hold Until the Picture Gets Clearer
To be fair, another key piece of the puzzle that’s missing for MAR stock is volume. Institutional investors make up a sizable portion of the stock and they’re not doing much right now. That could change after Labor Day when the hedge funds and commercial investors get back into the market.
And by then, there may be a better sense of the extent to which the Delta variant will affect the economic recovery. For that reason, I'd sit tight with your Marriott shares and if it breaks below $130 look to initiate or add to your position.
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