Marriott International (MAR) is resurrecting the Hot Shoppes brand, once a chain of several dozen restaurants, with the inclusion of a Hot Shoppes restaurant opening in the new Marriott Marquis hotel. It will be the first Hot Shoppes restaurant open since the closing of the last location in 1999. The menu for the new Hot Shoppes restaurant will include the signature hamburger the Mighty Mo.
These days, Mariott is more known for its signature hotels than its hamburgers. With nearly 3700 properties in 72 countries and territories, the Marriott brand is well-known throughout the world. The company plans on opening the world's tallest hotel later this year, the JW Marriott Marquis Dubai. The new hotel will be just 26 meters shorter than the Empire State Building.
The company recently spun off its timeshare interests into Marriott Vacations Worldwide (VAC), the new company's stock saw its debut on the NYSE on November 22, 2011.
In its most recent Q3 2011 conference call held on October 6, 2011, the company indicated North American transient demand remained strong in the third quarter. Double digit Revenue per Available Room (RevPAR) was realized in San Francisco, Los Angeles and Miami. RevPAR declined 2% in the Washington D.C. area due to a shortened congressional calendar, ongoing budget battles, weak government group demand and hurricane Irene. The company is realizing positive results from renovating the lobbies of Courtyard, with 370 renovations completed and 77 renovations scheduled for 2012, with Courtyard renovations expected to be completed by year-end 2013.
The company indicated they are experiencing a slow return of association group business. Additionally, a global distribution agreement with bookings.com, the largest online travel agency in Europe, was completed. Bookings.com is also planning on expanding its operations into the U.S.
The company indicated the performance outside of North America was impressive, particularly in Asia and Europe, with London and Paris performing very well. Also, the company indicated Japan is starting to recover, but on a negative note, operations in the Middle East remain challenging.
Competitors to Marriott include Hilton Worldwide (private), Accor (private), Intercontinental Hotels Group (IHG) and Wyndham Worldwide (WYN).
The company's stock price has been on the upswing over the last six months, but is well off of its previous resistance level in the $42 range, as shown below:
Short interest for the stock has spiked over the last couple of months, with number days short interest and percent short almost doubling from January to February. January's number days short interest was 3.2 and percent short was 4.1, with February's number days short interest at 6.2 and percent short at 7.2%. Apparently, some investors think Marriott's stock price is due for a negative correction.
A Marriott investor who is queasy about the short interest surrounding the company and the upcoming earnings release on Wednesday, February 15, 2012, might consider entering a collar position for the stock. A collar position can provide protection without having to pay for the protection. A collar may be entered by selling a call option against the stock and using some of the proceeds to purchase a put option for protection.
Using PowerOptions tools, a collar position was found for Marriott with a potential return of 2% (22.1% annualized) and a maximum potential loss of 9.1%, even if the price of the stock goes to zero. The table below illustrates the selected position:
The specific call option to sell is the 2012 Mar 36 at $1.05 and the put option to purchase is the 2012 Mar 32 at $0.35. A profit/loss graph for one contract of the position is shown below:
If the price of the stock is greater than or equal to the $36 strike of the call option at expiration in March, the position will return 2.2%. And, for a stock price less than the $32 put strike price, the value of the collar position will remain unchanged. If the shorts are correct, then it would not be surprising to see the stock price drop to its previous resistance level in the $28 range. If the price of the stock increases to around the $40 price range, the position can potentially be rolled in order to realize more potential return.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
No comments:
Post a Comment