Canaccord Upgrades Marriott, Likes Starwood Acquisition

• Marriott International Inc MAR shares are down 10 percent in the last one month, closing below $69 on December 3.
• Canaccord Genuity’s Ryan Meliker upgraded the rating on the company from Hold to Buy, while raising the price target from $83 to $88.
• Meliker believes that the merger with Starwood Hotels & Resorts Worldwide Inc HOT would result in short-term accretion as well as several longer-term benefits.

Analyst Ryan Meliker wrote, “At today’s valuations, we estimate MAR is acquiring HOT’s hotel business in a mostly stock transaction for 10.1x 2016E EBITDA (8.7x including cost synergies) vs. MAR’s current multiple of 11.6x.”

Meliker believes that the merger would be highly accretive and estimates it to be accretive by at least $5 per share in Marriott’s value in the near-term and at least $8 per share once all synergies are realized.

Related Link: 10 Reasons To Own Hilton Worldwide Stock

The company has guided to annual SG&A savings of more than $200M once integration is complete. The analyst pointed out that the company would have significant opportunities to “consolidate back-office operations, and negotiate better contracts with OTAs and on procurement as well.” These opportunities should result in margin expansion at owned, managed and franchised properties.

Marriott’s properties could generate outsized RevPAR growth, with the company’s total market share hitting 14 percent in the US and 48 percent of the Upper Upscale and Luxury segment. These figures are significantly higher than the company’s the second largest competitor, Hilton Worldwide Holdings Inc HLT, the share of which is estimated at 11 percent and 23 percent, respectively.

Marriott’s shares have declined 10 percent in one month due to concerns surrounding a deteriorating macro environment. Meliker added, however, that the US is unlikely to be entering a recession in the near term.