Canaccord Makes Valuation Call On Starwood Hotels, Downgrades To Hold

Starwood Hotels & Resorts Worldwide Inc HOT reported better-than- expected 1Q results, with adjusted EBITDA of $281 million and recurring EPS of $0.70. Canaccord Genuity’s Ryan Meliker downgraded the rating for the company from Buy to Hold, while reducing the price target from $88 to $86.

Although there is upside to Starwood Hotels’ shares, the uncertainty across the Time-Share industry was a dampener, analyst Ryan Meliker noted.

Valuation A Concern

Starwood Hotels’ shares have gained 19 percent year-to-date and are trading at only a 1 percent discount to the combined valuations of Marriott International Inc MAR, Interval Leisure Group, Inc. IILG and the cash considerations in the pending mergers.

“As such, we don’t see any relative outperformance vs. MAR prior to closing. However, HOT share downside potential exists associated with the ILG transaction as loan loss provisions across the timeshare industry have spooked investors,” the analyst wrote.

Guidance Raised

Starwood Hotels maintained its system-wide RevPAR guidance of 2-4 percent in constant currency terms, while raising its 2016 guidance of owned RevPAR growth by 100 bps at both ends of the range of 2-4 percent. The adjusted EBITDA guidance was raised $65 million at the midpoint, while the EPS guidance of $3.00-$3.06 was up $0.24 at the midpoint.

Meliker raised the recurring EPS estimates for 2016 and 2017 to $3.06 and $2.88, respectively.