Canaccord Genuity: Buy This 'HOT' Stock - Starwood Hotels & Resorts

On July 30, Canaccord Genuity analyst Ryan Meliker published "Opportunity knocks: Risk reward skew is very attractive," and reiterated his Buy rating for Starwood Hotels & Resorts

. While noting Starwood's recently announced disappointing Q2 results on RevPAR growth and reduced FY 2015 guidance, Meliker believes the near term catalyst for HOT shares remains the ongoing review of "strategic options." He feels that Mr. Market is discounting the likelihood of Starwood being acquired, after the Intercontinental Hotel Group

threw cold water on the idea that they were actively pursuing a merger. Tale Of The Tape - "Flash In The Pan" "The stock traded up yesterday on news that HOT was in merger talks with IHG, but then closed down 5.4% on IHG's statement that they are not in merger talks with HOT," according to Meliker.

During the past 52-weeks, $13.4 billion cap Starwood has traded in a range of $66.76 - $87.20 per share. Canaccord - A Bullish View, $93 PT Canaccord remains bullish on the hotel sector, noting that the lodging cycle should continue to remain strong through 2017, and perhaps even beyond. While HOT shares continue to trade slightly below the price level when the strategic review was announced, Meliker sees "…six potential outcomes from the strategic review process, all of which point to upside from current levels, given our favorable view of the lodging cycle." Canaccord - Starwood Scenarios "Valuation from [Canaccord's] six scenarios results in a blended average valuation of $93 per share:  Scenario 1: company sale to a strategic buyer (30% likelihood, $105 value);  Scenario 2: company sale to private equity in an LBO (10% likelihood, $86 value);  Scenario 3: merger of equals (20% likelihood, $93 value);  Scenario 4: acceleration of asset sales, with proceeds used to repurchase stock (20% likelihood, $86 value);  Scenario 5: acceleration of asset sales, with proceeds used to buy a brand (15% likelihood, $85 value); and  Scenario 6: HOT does nothing out of the review process (5% likelihood, $83 value)." Canaccord - Starwood Valuation Model Meliker's $93 target price is also derived from the Canaccord DCF model, after taking into account management's reduced guidance, and lowering 2015E RevPAR by 100 bps. Canaccord now forecasts "2015E EBITDA and recurring EPS of $1,194M and $3.01, respectively. 2016E EBITDA moves to $1,256M, while recurring EPS per share decreases to $3.25." This $93 base case valuation also represents 13.8x 2016E EBITDA per share, assuming $390 million of share buybacks. Canaccord - Potential M&A Suitors Meliker believes that the most likely candidates would be $26.2 billion cap Hilton Worldwide Holdings

and $9.8 billion cap Wyndham Worldwide Corp.

, along with Intercontinental. Notably, both Hilton and Intercontinental trade at premium multiples to Starwood, which implies that a potential deal could be accretive to earnings, without synergies. However, potential synergies could be significant, according to M&A consultants contacted by Canaccord "… anywhere from 50 - 80% of HOT's G&A could go away in a strategic buy-out, but the level would be based on how much overlap there is." This is a major factor in the $105 potential HOT share price estimate; which assumes a strategic buyer achieving a 75 percent reduction of about ~$400 million of G&A expense, and a 13x EBITDA valuation multiple.