Shares of Gaylord Entertainment Company (GET) have been on the upswing after an impressive first quarter earnings surprise and a deal with the largest publicly traded U.S. lodging chain. Valuation for this Zacks #1 Rank (Strong Buy) may seem a bit expensive, but with excellent earnings growth projection, this high-profile diversified hospitality and entertainment company looks like a solid growth pick.

Coming off a Winning Quarter & Guiding Higher

Gaylord Entertainment reported first quarter 2012 earnings per share of 12 cents on May 8, beating the Zacks Consensus Estimate by 71% and reversing last year's loss of 4 cents. The results were driven by a greater Average Daily Rate (ADR) and outside-the-room spending.

Consolidated cash flow (CCF) rose 24.3% year over year to $70.2 million, while CCF margins increased 410 basis points to 31.1%. Revenue per available room (RevPAR) – a key performance metric in the hotel industry – was up 3.8% and its total revenue per available room (including food & beverage, and other ancillary services) increased 4.9% compared to the first quarter of 2011.

In addition to the earnings surprise, Gaylord raised its full year CCF and total RevPAR guidance. The company expects CCF for 2012 between $235 million and $252 million, up from the previous guidance of $228 million to $243 million. Gaylord also raised its total RevPAR growth expectation to a range of 3% – 6% from the prior 2% – 5%.

Asset Sell-Off & REIT Conversion: Positive Catalysts

Gaylord recently announced plans to sell the brand and management of the company’s four existing hotels for $210 million to Marriott International Inc. (MAR) and then restructure as a Real Estate Investment Trust (REIT), effective January 1, 2013. Apart from enjoying Marriott’s much higher scale advantage, Gaylord shareholders can also look forward to a one time stock/cash dividend of its undistributed earnings and profits by year-end, as required under REIT conversion rules.

Zacks Consensus Estimates Move Higher

The full year Zacks Consensus Estimate for 2012 is up 9 cents (or 13%) to 77 cents over the last 60 days. Next year's average forecast is up 15 cents (or 16%) to $1.07. Given the 31 cents per share that Gaylord earned in 2011, the projected growth rate stands at 147% for 2012. If the company hits the target in 2013, the annual growth rate will be 40%.

Mixed Valuation Picture

Shares of Gaylord are going for about 49 times forward estimates, which seems a bit pricey. However, the PEG ratio of 2.46, though seemingly overvalued, is less than the 2.58 similar companies offer. Its price to sales ratio of 1.90 is essentially in-line with the peer group average of 1.87. The other metric that aggressive growth investors would look at – price to book – comes in at 1.74x, a 9% discount to the peer group average of 1.91x.

Chart Shows Estimate Growth

Shares have been surging lately, which has led to lofty valuations. While this may keep some investors on the sidelines, with the price and consensus chart demonstrating incrementally increasing annual consensus estimates each year, shares could keep climbing higher.

Nashville, Tennessee-based Gaylord Entertainment Company, through its subsidiaries, is engaged in the business of hospitality and entertainment. Gaylord’s four key properties – upscale, meetings-focused resorts – are located in the key regional air transport hubs of Dallas, Orlando, Nashville and Washington, D.C. The company’s other assets include the iconic Grand Ole Opry (the longest-running live radio program in the world), the famous Ryman Auditorium, the General Jackson Showboat, Gaylord Springs Golf Links and Nashville-based radio station WSM-AM.