3 Reasons Marriott Is MKM's Top Pick For 2017

Marriott International Inc MAR is MKM Partners' Top Pick for 2017, given “(1) stronger corporate transient demand, (2) accelerating share repurchases, and (3) execution of revenue and cost synergies from the Starwood acquisition.”

Marriott guided RevPAR growth of 0 percent – 2 percent in FY17 (compared to its closest peer guiding 1-3 percent). Analyst Christopher Agnew pointed out that Marriott’s top-line benefits from strong unit growth (6 percent – 7 percent annually) despite low-single digit RevPAR.

Agnew noted that Marriott’s scale, brand value and loyalty program is attracting third party capital and allowing the hotel operator to take market share in developed economies and participate in the secular emerging economies.

“MAR's asset-light, fee-based business model generates high ROIC (~50%) and strong FCF. We strongly reiterate our Buy rating and our price target moves to $98 (14% upside potential),” Agnew wrote in a note.

Among the key catalysts in 2017, Agnew predicts acceleration in share buybacks (beginning in Q4 2016) given the company expects to monetize the 15 owned hotels acquired from Starwood for over $1.5 billion in the next two years. The analyst models $1.2 billion of share repurchases.

Agnew expects FY 2017 adj. EBITDA and EPS of $3.167 billion and $4.16, respectively, compared to consensus of $3,030 billion and $4.02.

On the technical front too, the picture is rosy for Marriott.

MKM‘s Chief Market Technician, Jonathan Krinsky, says the stock has nearly recovered the entire loss after a big decline from mid-2015 into early 2016.

According to Krinsky, “it could probably consolidate in this $85 area (prior resistance), but a breakout above that would suggest a completion of a two-year base with upside potential towards $100.”