We are reverting to a Neutral recommendation on the hotel
Starwood Hotels & Resorts Worldwide Inc.
) from Outperform given the pressure on revenues and lingering
uncertainty in some geographic regions.
Why the Downgrade?
Starwood's revenues have lost momentum in the last two quarters,
increasing only 0.1% in fourth-quarter 2012 and plummeting 10.3%
year over year in first-quarter 2013 due to reduced revenues at
Starwood's owned, leased and consolidated joint venture hotels
and vacation ownership and residential businesses.
Despite its immense growth potential, a deteriorating political
situation and inflation in Argentina and an over-valued
Argentinian currency resulted in deceleration in Latin American
revenues. Waning demand and rising local costs are hurting
margins in the region. Moreover, revenue per available room
(RevPAR) in Europe has been facing a tough situation due to
austerity measures and fragile economic conditions. Long-term
outlook is also not clear. Further, European corporate customers
remain cautious when it comes to room rates.
With Europe and Argentina normally accounting for over 33% of
owned rooms and almost 40% of owned EBITDA, we consider this
sluggishness one of the major concerns in the near term. Further,
in developed markets, high unemployment and mounting pressure of
public and private debt has resulted in slower recovery.
However, despite these apathetic facts, some positive attributes
prevent us from being too pessimistic on the stock. A strong
developmental pipeline, significant international exposure, the
hotelier's asset disposition strategy, and limited asset supply
in North America should prove beneficial over the long term.
Other Stocks to Consider
Other players in the same industry, which look attractive at
current levels, include
Marriott International Inc.
Marriott Vacations Worldwide Corp.
Home Inns & Hotels Management Inc.
). While Marriott International carries a Zacks Rank #2 (Buy),
Marriott Vacations and Home Inns carry a Zacks Rank #1
HOME INNS&HOTEL (HMIN): Free Stock Analysis
STARWOOD HOTELS (HOT): Free Stock Analysis
MARRIOTT INTL-A (MAR): Free Stock Analysis
MARRIOT VAC WW (VAC): Free Stock Analysis
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