Marriott (NASDAQ:MAR) will report earnings on February 25 after the market closes. The results will account for the quarter prior to the COVID-19 (i.e. coronavirus) outbreak. Therefore, I expect the company will post earnings and revenue numbers that will meet or exceed analysts’ expectations.
For Marriott however, the earnings report will be all about the guidance. Hotels make the vast majority of their revenue from business travel and tourism. Although Marriott only generates 6% of its revenue from Asia, the continent accounts for approximately 15% of the company’s profits before interest and amortization. And there’s no doubt the company is beginning to feel the impact of the virus.
In the week that began February 24, shares of MAR are down over 13%. According to the research firm STR, hotel occupancy through the Asia-Pacific region was down 11.3% in January 2020 to sit at 57.8%. Revenue per available room was down 7.5% to $60.15.
From a technical standpoint, the stock has crossed below a line of support at $135. And MAR has also dropped below both its 50-day and 200-day moving average. On the other hand, the stock’s Relative Strength Index (RSI) sits just above 30 which suggests that the stock may be reaching a bottom.
The headlines will get worse before they get better
Undoubtedly, investors had to expect the COVID-19 virus to have an effect on travel and tourism in Asia. However, recent headlines are not helping the situation. For example, a senior member of the International Olympic Committee said the Summer Olympics scheduled to be hosted by Japan could be cancelled if the virus is not contained.
Plus, in the United States, the Centers for Disease Control (CDC) is advising that the coronavirus is likely to become a global pandemic. “Current global circumstances suggest it’s likely this virus will cause a pandemic,” said Anne Schuchat, the principal deputy director of the CDC. “It’s not so much a question of if this will happen anymore, but rather a question of when this will happen and how many people in this country will become infected and how many of those will develop the severe or more complicated disease.”
Marriott is taking steps to incent Asia-Pacific travelers
Along with other luxury hotel chains such as Hyatt (NYSE:H) and Hilton (NYSE:HLT), Marriott announced that it is extending the elite membership tier status of Marriott Bonvoy members in the Greater China region by 12 months. The membership will now go through February 2021. This also means that any deadlines on complimentary stays or expiration of loyalty points these travelers have achieved will be extended as well. And, Marriott announced it is extending its cancellation fee waiver for stays through March 31. This will apply to all guests in mainland China, Hong Kong SAR, Macau SAR and Taiwan as well as to guests from these regions traveling outbound to other Marriott properties around the world.
Every investor is different
The unanswerable question at the moment is what impact will the coronavirus have on global tourism? There is a school of thought that says the revenue lost in Asia will be somewhat made up for in the United States. Gas prices remain low as the price of oil remains weak. Consumer sentiment remains high. It’s not unthinkable that many Americans may change foreign travel plans to North American locations.
However, that’s not a sure thing by any means. If there’s one thing an outbreak like this teaches investors it’s that you can’t tell people how to feel. Part of hoping for the best and planning for the worst means that world health agencies have to theorize worst-case scenarios. So do investors. And that’s the problem of the moment for Marriott stock.
The bottom line on Marriott stock
I’ve always believed that the unknown is worse than the known. As it relates to investing, opportunistic investors know how to separate facts from fear. As the facts come out about the coronavirus, investors will be able to deal with the real costs to businesses, like Marriott.
The selloff in Marriott has been sharp and swift. Analysts have given MAR stock a consensus price target of $139.50. With the stock dropping sharply that now represents an upside of over 10%. If the stock falls further, as it is expected to, there could be an even greater upside.
But there is still more to be known. And until the true impact, and hopeful containment, of the coronavirus becomes evident, investors may want to wait on an exact buying point. However, I also believe Marriott is a good stock. And good stocks don’t suddenly become bad. You may want to wait on the sidelines for now, but I would keep an eye on Marriott should virus fears begin to abate.