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On Jul 9, 2013, Zacks Investment Research upgraded Starwood Hotels & Resorts Worldwide Inc. (HOT - Analyst Report) to a Zacks Rank #1 (Strong Buy) ahead of its second-quarter results due to be released later this month.

Why the Upgrade?

Starwood is expected to report its second-quarter earnings on Jul 25, 2013. The Zacks Consensus Estimate for the upcoming quarter is 73 cents, representing a year-over-year increase of 2.8%.

Starwood expects to post strong results in the upcoming quarters of 2013 as it benefits from the gradual economic recovery and emerging opportunities in the fast-growing markets.

The White Plains, NY-based hotelier is focusing on rebalancing its business in a fee-driven model. Its business is capital efficient as the owner/developer partners provide the capital and the company earns a fee for managing/franchising the hotel. This fee-based business will help the company to increase its profitability in the ensuing quarters.

Asset disposition is another strong point that will help Starwood reduce earnings volatility and provide a more stable growth profile. Starwood seeks to earn $3 billion in cash through asset sale by 2016.

In 2013, Starwood expects to post earnings of $2.75–$2.83 per share which represents growth of nearly 15% – 18% from 2012 earnings of $2.39 per share. The guidance was increased from prior expectations of $2.59 – $2.68 at the first-quarter conference call following better-than-expected first-quarter results and management’s unyielding faith in the company’s future prospects.

The first-quarter 2013 earnings beat the Zacks Consensus Estimate gaining from its margin expansion. This was the fourth consecutive quarter of positive earnings surprise for Starwood with an average beat of 19.23%. A share repurchase program will also help drive earnings in 2013.

The Zacks Consensus Estimate for 2013 was $2.83 per share which was at the higher end of the guidance range provided by management. The estimate increased 5.6% over the last 90 days representing a year-over-year increase of 8.4%. For fiscal 2014, the Zacks Consensus Estimate is $2.97 per share, which has increased 0.3% over the last 60 days indicating a year-over-year improvement of 4.8%.

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