Marriott International — How to Play Wednesday’s Earnings Report

Hotel company Marriott International (NYSE: MAR ) reports earnings for the
quarter ending Sept. 30 on Wednesday after the market closes. The report will
give investors an early read on the overall third-quarter earnings season. Given
the expectation of an economic slowdown, more will be looking at guidance
instead of actual results. Swirling economic headwinds have created challenging
operating conditions for Marriott. Granted, the higher oil prices seen early in
the year are softening of course, the reason oil prices have fallen is because
of a global fear of recession. But, as of mid-July, a hotel trade group expected
travel to hold firm for the rest of the year . Support of that forecast comes in
the form of tight capacity from air carriers. Planes are flying full, and many
of those passengers need to stay in hotels. That should bode well for Marriott
International. Earnings at Marriott International have been mixed during the
past four quarters: Marriott International met expectations for the period
ending June 30, but the company reduced guidance for the year with that report.
For the full year, the company expected profit to fall in a range of $1.35 to
$1.43 per share. It also noted a drop in closely watched room revenue. At the
time of the reduced guidance, Wall Street estimates for the year were at $1.41
per share for MAR. Today, the average Wall Street profit estimate for the year
is at $1.39 per share. In the following year, profits are expected to grow by
24% to $1.72 per share. At current prices, shares of Marriott International
trade for 20 times current-year estimated earnings. Click to Enlarge Since the
time of the reduced guidance, shares of Marriott International have dropped
significantly. The stock is down 21% since July 14. Prior to those losses, the
stock was flat across the previous 12 months. Although the company reduced
expectations in its last report, I expect the company to beat expectations in
the current quarter. Demand for travel still is strong, as evidenced by planes
flying at capacity. There is no indication that an economic slowdown will
negatively impact performance. Marriott International should get a slight bounce
with a good report. With shares trading for a multiple of earnings slightly
below estimated profit growth, the stock has some room to appreciate from here.
That said, it would seem to be prudent for management to be cautious when it
reports results after the market closes Wednesday. At best, the company will
reaffirm guidance for the year. That should be enough for the stock to reverse
course. If the report is stronger than expected and guidance improves, shares
could move significantly higher. Other companies reporting results this week
include Helen of Troy (NASDAQ: HELE ) and Constellation Brands (NYSE: STZ ). As
of this writing, Jamie Dlugosch did not own a position in any of the
aforementioned stocks.