Morgan Stanley: Time To Buy Sunstone Hotel

In a report published Thursday, Morgan Stanley analysts upgraded the rating on

from Equal-weight to Overweight, while raising the price target from $17 to $18. Despite the strong 1Q15 results posted by the company, the stock has declined 8 percent, year to date. Given the weak US economy and the continued strengthening of the US dollar, the 1Q15 expectations from the Lodgings industry has been lackluster. However, the overall results in the industry proved the naysayers wrong, with higher than anticipated EBITDA, despite strong Fx headwinds. The analysts believe that the decline in the share price was due to concerns regarding "a) the cycle, b) rising interest rates, and c) high NYC and DC exposures given high supply and int'l demand risks for those markets." In addition, "Rising interest rates should not be a risk to Lodging REITs given they re-price rooms daily, and SHO has lower exposure to NYC / DC than peers, while higher exposure to strong markets like CA and Boston," the report said. Sunstone not only outperformed its peers in 1Q15, the company's 2015 guidance points towards continuing strength in its fundamentals. The analysts believe that the current valuation is attractive, given that the company "owns a well-diversified portfolio of upper upscale properties in key urban markets."