Starwood Hotels: Suddenly A 'HOT' Commodity
What a difference a day can make in the hotel industry, where brands from economy to luxury vie for the weary traveler to check-in -- hopefully at the highest daily rate.
On April 29, investors checked into Starwood Hotels & Resorts Worldwide Inc (NYSE: HOT) after comments made by Chairman Bruce Duncan made it clear that the company is exploring all alternatives to boost shares, including a possible sale or merger.
Tale Of The Tape - Past Year
Starwood's former CEO stepped down in February, in part due to the company's relatively poor performance versus global hotel industry peers Marriott International (NYSE: MAR) and Hilton Worldwide Holdings (NYSE: HLT).
A Bloomberg article addressing this evolving Starwood story pointed out that shares of InterContinental Brands (NYSE: IHG), "U.K.-based owner of the Holiday Inn and Crowne Plaza brands, jumped in London trading after Starwood's announcement, fueling speculation that the two companies would combine."
Patrick Scholes, a New York-based analyst for SunTrust Robinson Humphrey told Bloomberg, "A sale of the company or a spinoff of the owned properties into a real estate investment trust would be the two most likely options that could help increase shareholder value."
Scholes added "Starwood hired Lazard Ltd. to help evaluate the different possibilities and said it doesn't plan to make any other comments on the review until it is complete."
MLV & Co. analyst Ryan Meliker was also quoted: "By saying no option is off the table, Starwood is indicating a potential sale of the company is possible. We believe the company could be worth well above $100 per share to a strategic or leveraged buyer."
MLV & Co. - Starwood: Deeper Dive
Meliker published a research note on Starwood Wednesday titled, "Strong 1Q15 Results Overshadowed by Announcement of Strategic Review."
- Strong Performance: HOT beat expectations on EBITDA and EPS, "largely driven by Timeshare and lower G&A costs, while constant currency RevPAR was in-line as were the FX headwinds."
- Buy-Back Activity: HOT announced the repurchase of 1.6M shares for $123M at an average price of $78.29 in 1Q compared to 7.8M shares for $609M at an average price of $78.12 in 4Q.
- FY 2015 Guidance Raised: Starwood gave 2015 "EPS guidance of $2.94 - $3.03 vs. consensus of $2.98 and MLV of $2.90."
- HOT Q2 Guidance Light: Starwood's Q2 2015 "EBITDA guidance calls for $290 - $300 million vs. consensus of $310 million and MLV of $316 million."
- HOT RevPAR Guidance: Basically in-line, Starwood issued Q2 2015 "RevPAR guidance of +5 - 7% WW in constant currency vs. our estimate of +6%."
MLV & Co. - Starwood: Buy, $91 PT
MLV's $91 year-end 2015 price target is driven by a DCF (discounted cash flow) analysis "using an 8.5% cost of equity and a 4% terminal growth rate. This valuation is supported by a sum of the parts analysis assuming a blended 2015E EBITDA multiple of 14.0x."
MLV & Co. - Starwood Bottom Line
Meliker believes that Starwood "could be worth well above $100 per share to a strategic or leveraged buyer and have a published bull-case upside of $111. Given this news we expect the stock to trade up materially and we would be buyers today under $100."
Latest Ratings for HOT
|Jul 2016||Canaccord Genuity||Terminates||Hold|
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