As all things consumer discretionary continue to jump ever higher (Apr 26: The Meek Continue to Dominate Equities) (Apr 5, 2009: The Meek Shall Inherit the Earth: 92 Stocks Over $10 Returning 60%+) on hopes of recovery in the not too distant future, I thought I'd circle back and look at some of the major hotels who just reported to see how they are doing. At this point all hotels are blessed - no worries about debt (Jan 27, 2009: As Hotel Vacancies Rise, So Do Risks of Default) (Nov 27, 2008: AP - Malls, Hotels Next Victims in New Mortgage Crisis) no worries about a weak consumer staying home and doing "staycations" - the Bernanke house ATM is back on, and feel free to move about the cabin.

Much like the multiple premature consumer discretionary rallies in 2008, this is "the playbook" and no matter what the reality is down the road, this whole sector is being bid up under the guise of ignore news now because the Oracle that is the market can see the future. It was wrong multiple times in the past; will it be correct this time? First, I don't know and second, it does not matter - as long as the herd is doing you, you can profit. Simple as that.

We last looked at this group in the January piece above, so I am going to circle back and look at Marriott (MAR),(Marriott, Ritz-Carlton, Residence Inns) Starwood Hotels (HOT) (Westin, Sheraton, Four Points), Wyndham Worldwide (WYN) (Ramada, Days Inn, Super 8) and Choice Hotels (CHH) (Quality Inn, Comfort Inn, Econo Lodge) - this gives us a good cross section of economic price points. Recall in previous recessions you could stick with the top end players because the well heeled were recession resistant, while the sludge of the Earth (peasantry) took the hits in the economy. This time not so much - we're all having fun together. RevPar is the key "measuring stick" in this sector (revenue per available room), and the higher end chains also do a lot of work in timeshares. And like almost every company beating the numbers it's "chop chop chop" across the expense line (mostly labor).

I know valuation does not matter to eager bulls who buy stocks at any price but I posted the forward PE at current estimates (which of course could be too high or too low) next to each name... as you mock my use of PE multiples as a useful tool remember this is a suffering industry showing shrinkage or at best "flattish" growth for the next year or two. If you believe in a grand consumer recovery, then I suppose you can add 15, 20, 25% to analyst estimates for 2009 and reduce the PE by an offsetting amount. These are not trailing... these are forward PEs

First we start with Marriott @ 26x forward PE, (Marriot has $3B in debt.) via AP and Reuters

• Hotel operator Marriott International (MAR) reported a smaller-than-expected quarterly loss on Thursday, helped by sharp cost cuts and signs of stabilizing demand. The company, which operates the Marriott, Ritz Carlton, Renaissance hotels, said its net loss was $23 million, or 6 cents per share, compared to a year-earlier profit of $121 million, or 33 cents per share. Excluding $129 million in pretax restructuring costs, the company earned 24 cents per share in the quarter, beating analyst estimates of 14 cents, according to Reuters Estimates. (remember restructuring costs don't count in American accounting, because its 1x and not "real" hence should not count against the company)
• Revenue fell 15 percent to $2.5 billion.
• First quarter results were hurt by a nearly 20 percent drop in worldwide RevPAR. For the second quarter of 2009, the company expects North American RevPAR to drop 22 percent to 25 percent and international revenue to decline between 17 percent and 20 percent.

Now for the magic words, have the CEO say "stabilization" and then lets look for the 2nd derivative improvement - i.e. getting worse at a slower pace.

• Despite the global slowdown, the company said it has seen a stabilization or slowing decline in its booking trends. Gross trends for corporate or package bookings were leveling off and new bookings were falling at a slower rate.
• "There are some initial signs of demand stabilization even if that today is at very low levels," said Chief Financial Officer Arne Sorenson.

Magic.

• The company, which operates 3,200 lodging properties worldwide, has battled lower demand by driving down room rates and cutting general and administrative costs 16 percent in the first quarter. (chop chop chop) North American management wages fell about 10 percent during the quarter. "The full-year EPS guidance would have been worse if not for aggressive corporate cost savings," FBR Capital analyst Patrick Scholes wrote in a note.
• In the first quarter, Marriott trimmed costs by shutting restaurants, cutting hours and trimming menu options. It cut hours at its retail stores and at some hotels, temporarily closed floors.
• The company lowered its adjusted earnings to between 20 cents and 23 cents per share in the second quarter, but said it was unable to provide a full-year outlook owing to the business environment. (once more, the company cannot see the bright future, but market speculators can)
• Robert LaFleur of Susquehanna Financial Group said the company "did an exceptional job of wringing costs out of its operations in the quarter."
• Still, Sorenson said while demand may have bottomed, "there is still a risk in pricing and therefore RevPAR," referring to an industry-wide metric of profitability.