Inside Wall Street: Lodging Demand Rises

Jul 17, 12 | 12:08 am

By Gene Marcial

The lodging industry was one of the hardest hit sectors of the economy, with the major multinational hotel companies bearing the brunt of the global recession's adverse impact. But as the industry started to recover this year, the same top hoteliers and hospitality companies that reeled from the downturn are now  leading the recovery's early phase.

So shares of top-ranking lodging companies, Marriott International (MAR +1.97%), InterContinental Hotel Group (IHG +0.56%) and Starwood Hotels & Resorts (HOT +4.03%), have been on the rise, even as other lodging stocks are still nursing their wounds.

Steven Kent, lodging analyst at Goldman Sachs, expects a "solid (second) quarter" for the group as the U.S. revenue-per-availabl​e-room (RevPAR) stays strong, in part driven by the fact that the lodging supply has not increased even as global demand has been improving.

"There are no indications that supply is increasing in the U.S., and global demand growth remains positive even if it is slowing in certain regions," says Kent in a report on the lodging industry. For the big three (Marriott, Starwood and InterContinental), "we believe trends should be good, although we would expect Marriott to show the best RevPAR growth given its U.S. focus and recent trends picking up in group business," notes Kent.

Marriott

"As our favorite name in our coverage, we expect Marriott to benefit from the positive industry trends we are currently seeing," says Kent. Given Marriott's heavy exposure to the U.S., about 80% of total rooms, he expects the company to benefit from a strong U.S. RevPAR environment of about 7%. At its Investors Day held in China in June, Marriott highlighted its expansive pipeline, saying it will add more than 100 hotels by 2014, with nearly 40 in China alone. Today Marriott has 22,800 managed rooms in China.

Shares of Marriott are trading at $38 a share, not far from its 52-week high of $40.45, and way up from its 52-week low of $25.49 last year. David Loeb, analyst at investment firm Robert W. Baird, who rates Marriott as "outperform," figures that with its "solid balance sheet and significant free cash flow generation," the company will earn $1.64 a share in 2012 and $1.90 a share in 2013, up from 2011's $1.40 a share.

Zacks Investment Research, which rates the stock as "outperform" with a 12-month price target of $44 a share, has higher earnings forecasts of $1.66 a share for 2012, and $2 per share for 2013. In a recent report on Marriott's prospects, Zacks said the company's strong pipeline, significant international exposure, solid balance sheet, aggressive buyback strategy and lower operating cost structure, augur well for its earnings growth prospects. It notes that Marriott has been increasing its market share in its various markets.

Starwood

Goldman Sachs's Kent expects the biggest news could come from Starwood as it has indicated it is in talks to sell some of its hotels, and "it could announce something bigger on the capital allocation front," he says.

Starwood, which is one of the world's largest lodging companies with more than 1,000 hotels in about 100 countries, is positioned to benefit from international economies, "and we expect major metropolitan markets, in which Starwood has higher exposure, to outperform over the long term," says Esther Kwon, analyst at S&P Capital IQ, who rates the stock a "buy."

Source to read complete article: MSN