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Starwood (HOT): Economic & Currency Woes Limit Revenues

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On Aug 19, we issued an updated research report on Starwood Hotels & Resorts Worldwide Inc. .

Notably, Marriott International, Inc. (MAR - Free Report) has inked a definitive merger deal to purchase Starwood, which will lead to the creation of the world's largest hotel company. Both the companies are awaiting approval from the Chinese regulatory agency (MOFCOM) and will close the deal as soon as they receive authorization from China.

Meanwhile, Starwood posted lower-than-expected second-quarter 2016 results on Jul 26, wherein both earnings and revenues lagged the Zacks Consensus Estimate.

Macroeconomic concerns in several emerging economies are spelling trouble for Starwood. Particularly, lingering political uncertainties in Europe and some parts of Africa as well as the economic slowdown in China is limiting revenue growth and hurting operating margins.

Starwood’s revenue per available room (RevPAR) growth is also slowing down while operating margins are yet to reach the pre-recession levels. In fact, the company expects this slower rate of RevPAR growth to result in lower fees in the second half of 2016.

Meanwhile, Starwood generates a substantial portion of its revenues from customers outside the U.S. Though the dollar weakened slightly in 2016 compared to the previous year, the negative currency impact is still significant. Therefore, the company’s earnings and revenues in the year are expected to be impacted by these currency-related headwinds.

Nonetheless, the hotel’s strong developmental pipeline and global presence bode well. Owing to an increase in demand for hotels, Starwood's average daily rates are also improving significantly.

Continual renovation of various brands over the past few months should augment top-line performance. Meanwhile, increased focus on asset disposition strategy and other cost saving measures should boost this Zacks Rank #4 (Sell) company’s profits, going ahead.

Stocks to Consider

Better-ranked stocks in this sector include Marriott Vacations Worldwide Corp. (VAC - Free Report) and Diamond Resorts International, Inc. . Both the stocks carry a Zacks Rank #2 (Buy).

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