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Starwood Hotels & Resorts: HOT Best Idea For 2013

 December 25, 2012 08:01 PM

(By Mani) Despite an uninspiring macroeconomic environment in 2012, it's been a solid year for lodging stocks. Lodging fundamentals held up nicely following a strong 2011 as the sector continues to benefit from the meaningful supply/demand disconnect.

Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT) is one of the best lodging ideas for 2013, driven by easier European comparisons, strong balance sheet, continued operating leverage in the owned portfolio and a rebound in China operations.

"We believe recent momentum in HOT shares is likely to carry into 2013 when we expect overly conservative concerns about HOT's European and China exposure to mitigate," Deutsche Bank analyst Carlo Santarelli said in a client note.

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In addition, global macroeconomic continue to reflect in shares at current levels, underestimating the company's high end skew and brand power domestically. Macro concerns have effectively lowered the bar for 2013 RevPAR performance and investors continue to lack appreciation of the strides HOT has taken to reduce funding costs, monetize real estate, and improve the quality of the balance sheet.

"We expect HOT to take incremental steps toward an asset-light model while low interest rates remain available to hotel buyers," Santarelli noted.

Moreover, the market is anticipating more meaningful asset sales as transaction valuations remain well above current trading multiples thereby providing ample capital for brand growth and other shareholder friendly options.

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Meanwhile, HOT shares would benefit from the company's luxury and upper upscale segmentation and exposure to domestic urban markets, coupled with a recovery from overly negative sentiment around the impact of slowing growth in China and fiscal problems in Europe.

An under-appreciated owned portfolio that is believe to be considerably undervalued at present also bodes well for the stock.

The company also boasts of a sound and flexible balance sheet being made stronger by recent hotel sales, condo sales at Bal Harbour, and a large debt refinancing, and strong domestic corporate profitability.

Starwood Hotels & Resorts is one of the leading hotel and leisure companies in the world with 1,128 properties in nearly 100 countries and approximately 154,000 employees at its owned and managed properties.

Starwood is a fully integrated owner, operator and franchiser of hotels, resorts and residences with the following internationally renowned brands such as St. Regis, The Luxury Collection, W, Westin, Le Méridien and Sheraton,  

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