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Overnight Trade: Marriott International Inc. (NASDAQ:MAR)

Analysis: The hotel industry has been on a smooth recovery in 2010 as businesses have been traveling more, and consumers have started to take more trips. The luxury side of hotels has actually outdone the mid-level and low-level hotels as luxury spending has returned before the other two. Entering this evening, Marriott International is looking as though it is ready for an earnings beat. The only question is whether its technicals put it in a position where its upside is limited.

One of the best signs that a lodging recovery is occurring is bed tax collections. Those collections have been up significantly throughout this year. Revenue per available room or (RevPAR) is one of the most significant measurements of a company’s rising or falling success. UBS believes that Marriott’s RevPAR improved 6-8% from last year.

In Q2, the company saw its RevPAR increase 9.8%, which took the company to an EPS of 0.32. In Q1, the company saw RevPAR decrease, and it hit an EPS of 0.22. Now, estimates for this quarter are coming in at 0.22 - 0.23. With rising RevPAR, should the company be making the same amount as Q1?

An increasing RevPAR means that the company is increasing both its occupancy rate and its room rate at the same time. This is very beneficial to a company. FBR Capital thinks MAR outperformed RevPAR as well, saying:

Given RevPAR trends so far through 3Q and conversations with our various industry contacts attesting to the return of business travel and strengthening of rate, we believe 3Q domestic RevPAR was above the high end of guidance provided by MAR (+5% to +7% for North American hotels) and what we believe is likely in the Street’s estimates (we surmise that 3Q consensus estimates are based on a range of +6% to +7% for most lodging companies’ U.S. hotels). As we have been discussing for several months, better-than-expected 3Q RevPAR should mean earnings “beat and raises” for the lodging sector, which should translate into higher stock prices.

Now, the only issue for Marriott is the company’s technicals. I do not like overvalued stocks. The only exception I will make is with the situation Marriott has. The company is overvalued on RSI and near its 52-week high. The company is overbought as well.

The one thing that I see though is bollinger bands that have gotten very narrow as of late. This is due to a quick run in Marriott’s price. This signals a breakout to the downside or upside. It will happen in either direction, and it does depend on the earnings report.

If earnings are even weak at all, a lot of selling will most likely occur. If they beat and guide well, then this stock will be setting new 52-week highs. I am in the latter camp. Things look good right now for luxury brands and the lodging industry. Flights increased in each month in the summer year-over-year…just another sign of more travel.

  • Entry: We are looking to enter MAR at 37.50 - 37.70.
  • Exit: We are looking to exit tomorrow morning.
  • Stop Loss: None.

Disclosure: No positions