Refer to the following excerpts from an analysts' report (13 pages total) covering Marriott International Inc....

 

Transcribed Image Text:

Refer to the following excerpts from an analysts' report (13 pages total) covering Marriott International Inc. to complete the following requirements. Morningstar Equity Analyst Report | Report as of 21 Sep 2019 05:47, UTC I Page 1 of 13 Marriott International Inc MAR (XNAS) Morningstar Rating Last Price 20 Sep 2019 21:44, UTC 126.97 USD 20 Sep 2019 Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (B) Industry 129.00 USD 0.98 Lodging 1.40 20 Sep 2019 1.40 20 Sep 2019 41.82 20 Sep 2019 14 May 2019 15:42, UTC Fair Value & Profit Drivers After reviewing Marriott's second-quarter results, we have maintained our fair value estimate of $129 per share. Our fair value estimate implies a 2020 adjusted enterprise value/EBITDA of 15 times. The key drivers of our financial model are revenue per available room, managed and franchised room growth, and owned expenses. Our unit growth forecast averages 4.8% annually over the next decade, supported by a favorable position with next-generation travelers, new brand growth, and a strong pipeline. For the company, we model managed and franchised 2019-28 annual unit growth of 3.3% and 6.4%, respectively. Our revPAR annual growth forecast for the next 10 years is 3.6%, with a steady-state revPAR around 5%. We see this U.S. hotel cycle lasting through 2019, representing 10 years of positive revPAR growth (versus an average seven- to nine-year length). This view is due to U.S. (67% of Marriott's total rooms) industry supply growth potentially peaking at around 2% in 2018 (versus closer to 3% in past cycles), and due to global demand continuing to be bolstered by emerging-market regions that are experiencing more middle- income class growth. As a result, we estimate 6.8% average annual revenue growth for 2019-28. We project operating margins (unadjusted for cost reimbursement) reaching 16.2% in 2028 from 12.5% in 2018 and steady-state EBI growth of 3.5% in 2028. We continue to assume a 9% cost of equity, which is in line with the 9% rate of return we expect investors to demand of a diversified equity portfolio. Sub-Industry: Hotels, Resorts & Cruise Lines Peer Group": Hotel Companies-Larger Close Competitors InterContinental Hotels Group PLC IHG. Accor SA AC... Hyatt Hotels Corp H. Choice Hotels International Inc CHH Currency (Mil) Market cap TTM Sales Operating Margin TTM/PE 26.11 58.14 19.16 23.58 USD EUR USD USD 11,420 10,666 7,866 5,048 4,504 4,238 4,763 1,072 16.07 13.66 5.67 30.77 a. What method is this analyst using to value Marriott? b. What is this analyst's price target for Marriott? If Marriott achieves that target in the next twelve months, what would be an investor's return? Explain. c. Describe how this analyst justifies the price target. d. Is there any other information in these excerpts that you might use to value Marriott? Explain. Refer to the following excerpts from an analysts' report (13 pages total) covering Marriott International Inc. to complete the following requirements. Morningstar Equity Analyst Report | Report as of 21 Sep 2019 05:47, UTC I Page 1 of 13 Marriott International Inc MAR (XNAS) Morningstar Rating Last Price 20 Sep 2019 21:44, UTC 126.97 USD 20 Sep 2019 Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (B) Industry 129.00 USD 0.98 Lodging 1.40 20 Sep 2019 1.40 20 Sep 2019 41.82 20 Sep 2019 14 May 2019 15:42, UTC Fair Value & Profit Drivers After reviewing Marriott's second-quarter results, we have maintained our fair value estimate of $129 per share. Our fair value estimate implies a 2020 adjusted enterprise value/EBITDA of 15 times. The key drivers of our financial model are revenue per available room, managed and franchised room growth, and owned expenses. Our unit growth forecast averages 4.8% annually over the next decade, supported by a favorable position with next-generation travelers, new brand growth, and a strong pipeline. For the company, we model managed and franchised 2019-28 annual unit growth of 3.3% and 6.4%, respectively. Our revPAR annual growth forecast for the next 10 years is 3.6%, with a steady-state revPAR around 5%. We see this U.S. hotel cycle lasting through 2019, representing 10 years of positive revPAR growth (versus an average seven- to nine-year length). This view is due to U.S. (67% of Marriott's total rooms) industry supply growth potentially peaking at around 2% in 2018 (versus closer to 3% in past cycles), and due to global demand continuing to be bolstered by emerging-market regions that are experiencing more middle- income class growth. As a result, we estimate 6.8% average annual revenue growth for 2019-28. We project operating margins (unadjusted for cost reimbursement) reaching 16.2% in 2028 from 12.5% in 2018 and steady-state EBI growth of 3.5% in 2028. We continue to assume a 9% cost of equity, which is in line with the 9% rate of return we expect investors to demand of a diversified equity portfolio. Sub-Industry: Hotels, Resorts & Cruise Lines Peer Group": Hotel Companies-Larger Close Competitors InterContinental Hotels Group PLC IHG. Accor SA AC... Hyatt Hotels Corp H. Choice Hotels International Inc CHH Currency (Mil) Market cap TTM Sales Operating Margin TTM/PE 26.11 58.14 19.16 23.58 USD EUR USD USD 11,420 10,666 7,866 5,048 4,504 4,238 4,763 1,072 16.07 13.66 5.67 30.77 a. What method is this analyst using to value Marriott? b. What is this analyst's price target for Marriott? If Marriott achieves that target in the next twelve months, what would be an investor's return? Explain. c. Describe how this analyst justifies the price target. d. Is there any other information in these excerpts that you might use to value Marriott? Explain.

Answer rating: 100% (QA)

a What method is this analyst using to value Marriott The analyst is using a discounted cash flow DCF model to value Marriott A DCF model estimates th... View the full answer