Starwood Hotels Target Increased

We maintain our Buy rating for Starwood Hotels and Resorts Worldwide (HOT - Analyst Report) following the release of strong Q1 financial results. We consider the company’s significant exposure to international markets to be a positive attribute that should help Starwood to weather the economic downturn in the U.S. market. We continue to believe that Starwood deserves a premium valuation, given the company’s well-positioned portfolio. Starwood is currently trading at approximately 10.9x our 2008 EBITDA estimate.

Marriott International Inc. (MAR - Analyst Report) currently trades at approximately 10.8x our 2008 EBITDA estimate. Starwood’s stock had declined from near $75 per share in mid-July to under $40 per share in mid-January. Some of the decline during the summer was likely in response to the tightening credit markets, and the perceived difficulties now present in obtaining financing for private-equity buyouts. As Starwood was seen by many on the Street as a potential takeout candidate, we believe the decline has in large part removed the buyout-premium that was likely reflected in HOT’s share price.

We believe that the pullback during last fall was likely the result of an increased focus by investors on the company’s vacation ownership business, which has to some extent overshadowed the strength in the company’s hotels operations. Most recently, concerns over the overall health of the economy, along with uncertainties regarding consumer spending going forward, led to further share price declines.

Shares of Starwood have gained approximately 20% year-to-date, and are currently 37% above the low point reached in January. Even following the rebound, we continue to consider shares of Starwood Hotels to be attractive. We have increased our price target from $53 to $60, based on an enterprise value/EBITDA multiple of 12x our 2008 EBITDA estimate.

Read the full analyst report on HOT.

Read the full analyst report on MAR.

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