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Starwood Upgraded to Outperform

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On Jul 30, we upgraded our recommendation on Starwood Hotels & Resorts Worldwide Inc. from Neutral to Outperform based on better-than-expected second-quarter 2013 results and increased earnings guidance.

Why the Upgrade?

Starwood’s earnings of 79 cents per share in the second quarter of 2013 breezed past the Zacks Consensus Estimate by 8.2% and grew 12.9% year over year. Earnings also came ahead of the company guided range of 70–73 cents per share. Solid margin expansion drove earnings in the quarter, which made up for the sluggish top-line performance in the quarter.

Buoyed by this better-than-expected performance, Starwood raised its full-year earnings guidance from the range of $2.75 – $2.83 to $2.81–$2.88 per share. This is the second time that Starwood has increased its full-year earnings guidance this year.

Owing to an improving trend in the North American business, system-wide occupancies at Starwood hotels in the region appeared to be pretty steady at 76% in the second quarter. The hotelier is also poised to tap the reviving economic condition in the emerging markets. More than half of the hotel’s properties are situated outside the U.S., which gives the company wide international exposure, unlike many of its peers.

We believe, going forward, the company’s strong pipeline, significant international exposure, shift to a fee-based business model, asset disposition strategy, portfolio restructuring and existing asset revamp initiatives will facilitate the company’s uphill ride. Compared to its peers, the company is expanding at a steady pace. Moreover, regular share repurchase activity and dividend distribution are bolstering shareholder value. Starwood currently carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Other players in the hotels sector that are currently performing well include Marcus Corp. (MCS - Free Report) , Wyndham Worldwide Corp. (WYN - Free Report) and Orient-Express Hotels Ltd. . All these companies carry a Zacks Rank #2 (Buy).

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