After restraining from share repurchases since the third quarter of fiscal 2008, White Plains, New York-based Starwood Hotels & Resorts Worldwide Inc. (HOT ) is recommencing its share repurchase program to boost investors' wealth. The board of directors of the hotel and leisure company has recently approved a share repurchase authorization of $250 million.
In an effort to enhance shareholders' value, the company also pursues a dividend policy. In November 2010, Starwood hiked its annual dividend by 10 cents to 30 cents per share and in November 2011, the company boosted its annual dividend by 67% to 50 cents.
At the end of the third quarter of 2011, Starwood had cash and cash equivalents of $987.0 million (excluding $150 million of restricted cash) and weighted average share outstanding of 190 million. Thus, the company's cash position is good and has the ability to enhance shareholder value.
Since third quarter 2008, Starwood did not repurchase shares owing to the economic slowdown and exhausted its repurchase capacity under the previous program. In the first three quarters of 2008, the company repurchased approximately 13.6 million shares at a total cost of approximately $593 million.
However, Starwood is delivering solid results in the recent quarters aided by an increase in demand for hotels.The strong business trend is also evident from its consecutive guidance increase for fiscal 2011. In the recently concluded third quarter of 2011, Starwood raised its 2011 earnings guidance to the range of $1.75-$1.79 (previously $1.67-$1.77) per share. Before this, Starwood had raised its fiscal year guidance twice. For 2012, Starwood expects earnings in the range of $1.96--$2.25 per share.
Going forward, the company's strong pipeline, significant international exposure, shift to a fee-based business model,a less capital-intensive timeshare business, asset disposition strategy and revival in business travel also augur well for its earnings.
We appreciate Starwood's effort to bolster long-term shareholder value and believe that the new share repurchase authorization affirms the company's optimistic outlook and reflects strong growth potential going forward. Concurrently, share repurchases will also help the company to reduce share count, thereby driving higher earnings per share and return on equity. As of December 2, 2011, the shares of the company were trading at $48.43. The stock had historically traded between $35.78 and $65.51 in the last 12 months. Apart from enhancing shareholder value, this strategic move will also lift the relatively undervalued share price.
Starwood currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. Its prime competitors are Marriott International Inc (MAR) and Wynn Resorts Ltd. ( WYNN ).