We maintain our Neutral recommendation on
Starwood Hotels & Resorts Worldwide Inc.
), given its strong outlook for the fourth quarter of 2013 and
for 2014. However, a volatile economic scenario and lingering
uncertainty in various regions keep us on the sidelines.
Why the Reiteration?
Starwood's top line surpassed the Zacks Consensus Estimate and
increased 3.6% year over year driven by increased management
fees, franchise fees and other income and solid revenue per
available room (RevPAR) growth. The bottom line also beat the
consensus mark by 12.7% and was up 6.1% year over year driven by
solid revenues and margin expansion.
Moreover, Starwood raised its earnings guidance for 2013. It now
expects its adjusted earnings per share in the range of
$2.93-$2.95, up from the prior estimates of $2.81-$2.88. The
company expects RevPAR for same-store company-operated hotels to
increase in the range of 5.0% to 7.0% in 2014 compared to 4.0% to
6.0% in 2013. Driven by the strong results, estimates for 2013
and 2014 largely moved upwards over the past 60 days. The Zacks
Consensus Estimate for 2014 has increased 1.7% to $3.02 over the
Starwood is one of the world's largest hotel and leisure
companies that cater to major markets around the world. We
believe the strength of Starwood's brand allows the company to
charge a premium price for its hotel rooms. Given its property
locations and strong brand recognition, we believe the company is
well positioned to benefit from higher market demand on the back
of stepped-up business traveling in major North American and
More than half of Starwood's properties are situated outside the
U.S., which gives the company wide international exposure. Apart
from China, Starwood is expanding its presence in India, Japan,
Thailand and Oceania. The company also continues to expand
opportunistically in high profile destinations such as London,
Paris, Barcelona and Milan.
Meanwhile, asset disposition remains another bright spot for the
company. Since late 2010, transition to an 'asset light' business
model has gained momentum in the hotels and REIT industry. Asset
sale remains a long-term strategy for greater financial
flexibility, which would help the company to grow through
management and licensing arrangements instead of direct ownership
of real estate. Moreover, in an effort to enhance shareholder
value, the company pursues a dividend distribution policy and a
share repurchase program.
Despite these positives, we remain concerned due to the lingering
uncertainty and volatile economic scenario in various regions.
Despite the immense growth potential, a deteriorating political
situation and a slowing economy in Brazil have decelerated
overall Latin American sales. Currently, Egypt is facing
political instability while riots are affecting growth prospects
in Nigeria. The company does not expect the situation in Egypt to
improve in the near term. The troubles in Egypt and Syria cast a
shadow over the performance of the entire African and Middle
Also, management remains skeptical about the recent budget
sequestration in the U.S. and believes that the federal actions
may be unfavorable for the leisure business. According to
management, uncertainty over the new government's policy in China
is a concern.
Other Stocks to Consider
The company presently has a short-term Zacks Rank #3 (Hold). Some
better-ranked stocks in the hotel sector include
Wyndham Worldwide Corporation
Home Inns & Hotels Management Inc.
Orient-Express Hotels Ltd.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
HOME INNS&HOTEL (HMIN): Free Stock Analysis
STARWOOD HOTELS (HOT): Free Stock Analysis
ORIENT EXP HOTL (OEH): Free Stock Analysis
WYNDHAM WORLDWD (WYN): Free Stock Analysis
To read this article on Zacks.com click here.