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Sunday, June 16, 2013 9:01:55 PM
J.P. Morgan notes Starwood and Wyndham have the capacity to raise payouts.
J.P. Morgan Securities
We continue to like select lodging ideas and see several reasons why the stocks should grind higher. We think much of the fundamentally driven reasons to support our views are often overshadowed by macroeconomic risks (to say the least).
Our best ideas remain Starwood Hotels & Resorts Worldwide (ticker: HOT) ($72 price target), Wyndham Worldwide (WYN) ($70 price target), Host Hotels & Resorts (HST) ($21 price target) and Strategic Hotels & Resorts (BEE) ($9 price target), each rated at Overweight and rank these in order of our preference at this time.
We rate Starwood at Overweight given its luxury and global gateway city footprint, our projections of a steady low-double-digit earnings before interest, taxes, depreciation and amortization (Ebitda) compounded annualized growth rate (CAGR) growth through 2015 (driven by its global pipeline and our views of out-year RevPAR growth). More importantly, we believe Starwood has ample opportunities to recycle capital from unmolded asset sales into shareholder-friendly activities like dividends and buybacks (especially given Starwood's pristine balance sheet with net leverage at less than 1.0 times and management's commentary about not delevering further from here).
We continue to like Overweight-rated Wyndham and see sustainability of free-cash-flow growth—driven by its resilient set of hospitality businesses—which should continue to be deployed into shareholder-friendly ways (i.e., annual dividend increases, ongoing open-market buybacks) as well as continued small tuck in acquisitions to drive incremental Ebitda and free-cash-flow growth.
We rate Host Hotels at Overweight given its reduced capital-spending cycle in 2013 versus 2012, generally easy comparisons, and 2013 renovation related lift (particularly in New York City, which should allow it to outperform a strong market), all driving potential/likely above peer aggregate revenue per available room (RevPAR) and Ebitda growth. We also highlight its attractive discount to our estimated net asset value (based on recent industry-transaction costs) and Host Hotels' 2012 share-price underperformance (relative to the group). Lastly we like its exposure to group (about 40% of annual room nights) against the backdrop of reasonable to low buy-side expectations for this segment. We think management has set the 2013 group (food and beverage, banquet) revenue and overall margin-improvement bar fairly low, setting up for potential upside later in the year. This is positive for the entire group.
Overweight-rated Strategic Hotels is a play on improving group trends and asset value while Overweight-rated Hyatt Hotels (H) is a combination of asset value, relative low brand penetration with solid unit growth prospects (driving an attractive low-double-digit Ebitda CAGR through 2015), with an undemanding valuation.
-- Joseph Greff
-- Kevin Milota
-- Jonathan Mohraz
http://online.barrons.com/article/SB50001424052748704878904578541772356088036.html?mod=BOL_twm_da
"Someone said it takes 30 years to be an instant success" - Gabriel Barbier-Mueller, CEO of Harwood International
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