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Investors checked into shares of Marriott International (MAR) on Thursday, sending the stock price up 6.5% to $40.82 after the lodging company's quarterly results bested Wall Street expectations, and it issued an upbeat forecast for next year. Earlier in the session, the stock touched a new 52-week high of $41.
Marriott reported a 12% rise in third quarter adjusted income from continuing operations on Oct. 5, to $144 million; adjusted EPS from continuing operations climbed 21%, to 34 cents. Adjusted results for both years exclude the impact of the company's synthetic fuel business. The 2005 adjusted results also exclude the impact of a $17 million pre-tax impairment charge (2 cents a share after-tax) related to an investment in a leveraged lease aircraft.
Strength was evident in the company's revenue per available room, an industry measure commonly known as RevPAR. In the third quarter, RevPAR for the company's comparable worldwide system-wide properties increased 9.4% (9.0% in constant dollars). System-wide comparable North American RevPAR increased 8.6%, which the company chalked up to improved room rates and strong results came from markets along the East and West Coasts, as well as Chicago.
In a press release, CEO J.W. Marriott Jr., said, "[W]ith strong meeting and business travel coupled with healthy holiday travel bookings to the Caribbean and other resort destinations, we are optimistic about our fourth quarter performance."
The company also issued forecasts for 2007. Marriott sees earnings per share of 46 cents to 51 cents for the fourth quarter, $1.59-$1.64 for all of 2006, and $1.78-$1.88 for 2007. It expects 2007 RevPAR growth of 7-8%.
Morgan Stanley analysts Celeste Mellet Brown and Krystie Urbanski noted that the company's third quarter EPS was ahead of Wall Street estimates and the high end of the company’s guidance range of 30 cents. In an Oct. 5 research note, they said Marriott's EPS outperformance was driven by stronger fee revenue and higher timeshare earnings. They rate the stock equal-weight and have a $46 price target on the shares.
Standard & Poor's analyst Thomas Graves reiterated his hold rating on the shares, and raised his EPS estimates for 2006 to $1.65 from $1.58 and for 2007 to $1.90 from $1.87 (S&P, like BusinessWeek.com, is a unit of The McGraw-Hill Companies).
Graves notes that based on his 2007 EPS estimate, Marriott is at about a 51% P-E premium to the S&P 500. He expects its shares to gain support from the U.S. hotel industry upturn and his anticipation of strong cash flow. Graves also predicts further stock buybacks. With Marriott's more favorable EPS outlook, Graves hiked his 12-month target price $2, to $41.
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