Earnings Preview: Starwood Hotels

Starwood Hotels & Resorts Worldwide Inc. ( HOT - Analyst Report ) is slated to release its third-quarter 2012 results on October 25, before the opening bell. The current Zacks Consensus Estimate for the third quarter is 53 cents per share on revenue of $1,446.0 million.

The current Zacks Consensus Estimate for the third quarter earnings per share reflects year-over-year growth of 26.07%.

Earnings Surprise

With respect to earnings surprises, over the trailing four quarters, Starwood has outperformed the Zacks Consensus Estimate in the range of 7.69% to 24.56%. The average earnings surprise was 16.88%. This implies that the company has surpassed the Zacks Consensus Estimate by the said magnitude over the last four quarters.

Second Quarter Recap

Based in White Plains, New York, Starwood reported second-quarter 2012 adjusted earnings from continuing operations of 70 cents. It comprehensively surpassed the Zacks Consensus Estimate of 62 cents as well as the year-ago level of 50 cents. On a GAAP basis, earnings from continuing operations were 66 cents compared to 77 cents in the second quarter of 2011.

Revenues grew 13.5% year over year to $1,618 million in the quarter, with revenue per available room (RevPAR) witnessing strong growth. Revenues also outperformed the Zacks Consensus Estimate of $1,550.0 million.

Management Guidance

For third-quarter 2012, earnings are expected to be approximately 50 to 54 cents per share (including Bal Harbor project).

Earnings Estimate Revisions – Overview

Ahead of the earnings release, we have noticed a slight negative sentiment prevailing around the stock.

Agreement of Estimate Revisions

For the upcoming third quarter, no analyst covering the stock revised the estimate in the last 7 days. However, only one analyst out of 19 slashed the same in the last one month while none went for the upward revision.

Magnitude of Estimate Revisions

There has been no change in estimates in the last two months for the third quarter. Therefore, the analysts expect the company to report in line.

Our Take

We remain optimistic on the company’s strong pipeline, significant international exposure, shift to a fee-based business model, asset disposition strategy, portfolio restructuring, and strategy of existing asset revamp. Compared to its peers, the company is also expanding at a steady pace. Moreover, share repurchase activity and dividend distribution are the other positives of the stock.

However, slowdown in 2012 RevPAR growth in North America as well as in some Chinese cities make us cautious on the stock. Some major renovations and a negative exchange rate shift are some near-term causes of concern.

Starwood currently carries a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

Another prominent hotelier, Wyndham Worldwide Corporation ( WYN - Analyst Report ) , is slated to release its third-quarter 2012 earnings on October 24, 2012.