Is Starwood (HOT) Poised to Beat Earnings Estimates Again? - Analyst Blog

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Starwood Hotels & Resorts Worldwide Inc. ( HOT ) is set to report second quarter 2014 results on Jul 24, 2014. Last quarter, it posted a positive earnings surprise of 12.5%. Let's see how things are shaping up for this announcement.

Factors to Consider this Quarter

This leading hotelier has beaten the Zacks Consensus Estimate for earnings in the past four quarters. Though earnings declined year over year in the first quarter, it was above management's guidance range. The improved bottom line reflects improved margins. For second-quarter 2014, earnings are expected to be approximately 72 cents to 76 cents per share, down year over year. However, the Zacks Consensus Estimate of 76 cents stands on the higher end of the guidance.

Despite a year-over-year decline in the top line, margins have in fact continued to improve throughout 2013 and in the first quarter of 2014 driven by higher margins in North America and international markets. The trend is expected to continue, given the company's worldwide expansion. Despite an uncertain economic and geopolitical environment, the company remains focused on expanding its footprint worldwide.

More than half of Starwood's properties are situated outside the U.S., which gives the company a wide international exposure, unlike any of its peers. The demand for hotels in the international market is greater than in the U.S. and the pace of recovery is particularly fast in the underserved Asia-Pacific region.

According to PwC, the growth in demand for hotels is expected to exceed supply growth in 2014. This leaves scope for increasing room rate, going forward. Moreover, we expect second quarter revenue to benefit from the FIFA World Cup that ended on Jul 13 as it would increase the visitation pattern of the regions in which the company operates.

However, the sale of The St. Regis Bal Harbour residential project in Jan 2014 would continue to negatively impact revenues in the second quarter. The sale was a part of the company's asset disposition strategy, which would provide greater financial flexibility to the company over the long term.

The company has been facing a deteriorating political situation and a weak economy in Latin America. Also, tighter credit markets in China, the political turmoil in Thailand, Argentine currency devaluation, unrest in Ukraine, and Russian actions in Crimea have been limiting sales growth. We expect these headwinds to impact second quarter results.

Earnings Whispers?

Our proven model does not conclusively show that Starwood Hotels is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 76 cents. Hence, the difference is 0.00%.

Zacks Rank #2 (Buy): Starwood's Zacks Rank #2 when combined with a 0.00% ESP makes surprise prediction difficult. Note that the Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Stocks to Consider

Other stocks in the hotels and motels industry and broader consumer discretionary sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Choice Hotels International Inc. ( CHH ), with Earnings ESP of +2.04% and a Zacks Rank #2.

Pinnacle Entertainment Inc. ( PNK ) with Earnings ESP of +8.3% and a Zacks Rank #2.

Penn National Gaming Inc. ( PENN ) with Earnings ESP of +14.3% and a Zacks Rank #3 (Hold).

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STARWOOD HOTELS (HOT): Free Stock Analysis Report

PINNACLE ENTRTN (PNK): Free Stock Analysis Report

CHOICE HTL INTL (CHH): Free Stock Analysis Report

PENN NATL GAMNG (PENN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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