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We are maintaining our long-term Neutral recommendation on Starwood Hotels & Resorts Worldwide Inc. (HOT - Analyst Report), on a host of factors. These include second quarter 2011 results, immense development prospects in Asia-Pacific markets (particularly China) and successful asset disposition strategy, partially offset by lingering concerns in Middle East and Africa as well as Japan.

We are impressed with Starwood’s outperformance in the recently concluded second quarter. The strength of the namesake brand allows the company to charge a premium for its hotel rooms.

The company continued to experience occupancy gains on the back of economic recovery and a surge in demand for leisure as well as business travel. Following second-quarter earnings, Starwood also increased its guidance for 2011.

Moreover, Starwood has over half of its hotel properties outside the U.S., an international exposure that not many of its peers can boast of. Over 80% of the company’s 85,000 room pipeline is in international markets, with more than 60% focused toward the Asia-Pacific market. Within Asia-Pacific, China promises immense growth potential. Starwood intends to triple its China business over the next five years. The other markets that Starwood is eyeing for expansion are Brazil, the United Arab Emirates and India.

Going forward, the company’s shift to a fee-based business model, a less capital-intensive timeshare business and asset disposition strategy augur well for its earnings. In the second quarter of 2011, Starwood sold two big hotels –– Westin Gaslamp, W Chicago Center as well as an interest in Boston Park Plaza, a consolidated joint venture hotel. Together, these asset sales generated $281 million in cash and $57 million in debt reduction in the second quarter of 2011.

However, we remain cautious on the stock as RevPAR growth in 2011 may moderate due to tough comparisons from the World Expo in Shanghai, China that took place in the third quarter of 2010 and lingering effects of the earthquake in Japan and political turmoil in the Middle East and Africa.

In the developing countries, Starwood is facing stiff competition from domestic as well as international peers like Marriott International Inc. (MAR - Analyst Report) and Wyndham Worldwide Corporation (WYN - Analyst Report).

Zacks Consensus Estimate

In the last 30 days, 13 out of 23 analysts, raised their estimates for the upcoming quarter and 4 lowered the same. For 2011, 16 out of 26 analysts increased their estimates while none went in the opposite direction.

Additionally, over the last 30 days, the earnings estimate increased by a penny to 39 cents for the upcoming quarter while the estimate for 2011 increased 4 cents to $1.75.

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