Starwood's Growth Plans on Track, Macro Concerns Remain

On Sep 26, 2014, we issued an updated research report on Starwood Hotels and Resorts Worldwide Inc. (HOT).

On Jul 24, 2014, the company posted mixed second quarter 2014 results with earnings beating the Zacks Consensus Estimate but revenues missing the same. Owing to better-than-expected earnings, the company also increased its earnings guidance for 2014.

Adjusted earnings of 77 cents per share declined year over year owing to lower revenues and higher expenses. Revenues of $1.54 billion declined year over year due to a decline in vacation ownership and residential sales and services revenues.

Revenues from residential sales mainly dropped due to the sale of The St. Regis Bal Harbour residential project in Jan 2014 and the Aloft Tucson University in Tucson, AZ. However, this sale comes as a part of the asset light strategy being executed by the company. Though asset sale weighs on revenues in the near-term, it provides greater financial flexibility in the long run.

Moreover, we believe that the Starwood’s strong developmental pipeline and significant international presence bode well for future growth. Demand for hotels has remained strong over the past few quarters. Going forward, the demand for hotels is expected to exceed supply. This leaves scope for further upside in room rate and RevPar.

However, we would like to remind investors that Starwood is facing troubles in the countries where it operates. A deteriorating political situation and a sluggish economy in Brazil and Chile continue to weigh on demand in these regions. Moreover, the political turmoil in Thailand, Argentine currency devaluation, visa restrictions and concerns about the corona virus in Saudi Arabia, and Vietnam’s dispute with China add to the woes.

Also, the lingering political uncertainty in Europe, Latin America and in some parts of Africa and an economic slowdown in China keep us concerned. In fact, other hoteliers like Marriott International Inc. (MAR), Hyatt Hotels Corporation (H) and Wyndham Worldwide Corporation (WYN) are also being adversely affected by the issues in these regions.

Read the Full Research Report on HOT
Read the Full Research Report on WYN
Read the Full Research Report on MAR
Read the Full Research Report on H


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