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Starwood Hotels' (HOT) Q2 Earnings: What's in the Cards?

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Starwood Hotels & Resorts Worldwide Inc. is scheduled to report second-quarter 2016 results on Jul 26, before the opening bell.

Notably, Starwood has inked a definitive agreement to be acquired by Marriott International, Inc. (MAR - Free Report) , which will lead to the creation of the world's largest hotel company.

Meanwhile, last quarter, Starwood posted a positive earnings surprise of 20.69%. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 12.41%.

STARWOOD HOTELS Price and EPS Surprise

STARWOOD HOTELS Price and EPS Surprise | STARWOOD HOTELS Quote

Let’s see how things are shaping up for this announcement.

Factors Likely to Influence this Quarter

Notably, for the second quarter, Starwood expects earnings per share in the range of 69–74 cents. Meanwhile, worldwide same-store system-wide hotels RevPAR is anticipated to grow 2–4% (in constant dollars).

Continual renovation of the Sheraton and Aloft brand over the past few months should boost top-line performance. Meanwhile, increased focus on asset disposition strategy and other cost saving measures should boost the quarter’s profitability.

However, lingering global uncertainty in economies like Europe, Brazil and China is likely to limit revenue growth and hurt operating margins. Also, soft demand in the oil producing regions is likely to mar RevPAR in the to-be-reported quarter.

Additionally, despite the weakening of the U.S. dollar in 2016, negative currency translation is expected to reduce the value of overseas sales, given Starwood’s significant international presence, thereby hurting revenues and profits in the to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Starwood is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Starwood has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 74 cents.

Zacks Rank: Starwood has a Zacks Rank #4 (Sell). Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Vail Resorts Inc. (MTN - Free Report) has an earnings ESP of +1.21% and a Zacks Rank #2.

Penn National Gaming Inc. (PENN - Free Report) has an earnings ESP of +24.14% and a Zacks Rank #3.

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Marriott International, Inc. (MAR) - free report >>

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