Marriott: Back At 2007 Levels, Could Spell Trouble

Sep.20.13 | About: Marriott International, (MAR)

By Neal Rau

Marriott International Inc. (MAR), which operates the Courtyard, Renaissance, Ritz-Carlton and Fairfield brands as well as its namesake hotels, has benefited from growing demand from corporate travelers in the U.S. and low hotel supply growth. High occupancy rates and higher room rates have helped the company's stock this year, as shares are trading near a 52 week high, and at the highest levels since 2007. Is this the time to buy, sell or hold shares of MAR?

The hotel giant is taking advantage of a healthy business environment by investing in an extensive renovation of some hotels, which will likely boost revenue per available room once they are fully refurbished. Marriott is primarily focusing on reviving its older properties in order to stay current with the newer ones. The company recently completed the $40 million makeover of Chicago's Marriott O'Hare, and Marriott is working on an extensive $30 million makeover plan for Detroit Marriott at the Renaissance Center in Detroit, Mich., expected to be completed by 2015.

The company is also looking to restructure its balance sheet and pay off some debt. Marriott is currently negotiating a sale of three Edition hotels in London, Miami Beach, and Manhattan for $800 million. The asset sale is part of the companies' long-term strategy to strengthen financial flexibility, which in turn will hopefully maximize shareholder value. The transaction serves to unlock real estate value by giving away ownership of selective assets. A higher concentration of franchise fees reduces earnings volatility and provides a more stable growth profile.

The stock has done well this year, returning over 17% YTD and over 9% in the last month, but that news has pushed the stock towards a resistance level, and according to the Stock Traders Daily trading report, MAR is near a test of long-term resistance, close to levels it has not seen since 2007, and this is very important to investors who consider price to be important to their investment strategy.

Similar financial improvements have been industry wide, as competitors like Starwood Hotels & Resorts Worldwide Inc. (HOT) and Hyatt Hotels Corporation (H) have this year seen their shares rise about 19% and 17%, respectively. Rival Hilton Worldwide indicated that its occupancy rates have been climbing along with increases in the average room rate, in a recent IPO filing. Hilton will seek to raise $1.25 billion from an initial public offering of its common stock in the near future.

Marriott last posted its quarterly earnings results on Wednesday, July 31. The company reported $0.57 EPS for the quarter, and in line with most analysts' projections. The company had revenue of $3.26 billion for the quarter, compared to the consensus estimate of $3.21 billion. The company also recently announced a quarterly dividend, which is scheduled for Friday, September 27.

Marriott Insider, David Marriott, sold 37,192 shares of the company's stock on the open market in a transaction that occurred on Monday, September 16. The shares were sold at an average price of $43.20, for a total value of $1,606,694.40.

The industry looks strong right now, but that does not mean the stock will continue to climb from here. If the stock tests resistance, and remains below resistance, as defined in our real time trading report, Stock Traders Daily expects lower levels and a test of support. That would make MAR a sell/short at resistance, with risk controls in place if resistance breaks higher.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.