Wachovia Sees 'False Recovery' in Lodging Stocks; Upgrades HOT, SHO, Downgrades HST
HOT Hot Sheet
Rating Summary:12 Buy, 8 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 16 | Down: 7 | New: 23
Analysts at Wachovia made a sector-wide call on the Lodging industry today, upgrading shares of Starwood (NYSE: HOT) and Sunstone (NYSE: SHO) and downgrading shares of Host Hotels (NYSE: HST). The firm believes the sector is staging a "false recovery" similar to the rise following the attacks on 9/11.
Wachovia points out that valuations in the Lodging sector are approaching those seen in the '02 rally: forward twelve-month EV/EBITDA multiples are averaging 10.4x in the group, just 50 basis points below the 10.9x multiple garnered by these stocks "during the last period of significant RevPAR declines" in the industry. To this point, Wachovia notes that the "rally in early 2002 was based upon the supposition the stocks had bottomed and easier RevPAR growth comparisons lay ahead. After the easy comparisons passed, RevPAR declines resumed in 2003 and industry profit (EBITDA) did not see a bottom until late 2003."
Below are the Lodging stocks covered by Wachovia:
Wachovia points out that valuations in the Lodging sector are approaching those seen in the '02 rally: forward twelve-month EV/EBITDA multiples are averaging 10.4x in the group, just 50 basis points below the 10.9x multiple garnered by these stocks "during the last period of significant RevPAR declines" in the industry. To this point, Wachovia notes that the "rally in early 2002 was based upon the supposition the stocks had bottomed and easier RevPAR growth comparisons lay ahead. After the easy comparisons passed, RevPAR declines resumed in 2003 and industry profit (EBITDA) did not see a bottom until late 2003."
Below are the Lodging stocks covered by Wachovia:
- Starwood Hotels & Resorts - upgraded from Market Perform to Outperform with a $22-$24 valuation range
- Sunstone Hotels - upgraded from Market Perform to Outperform with a $5-$7 valuation range
- Hospitality Properties Trust (NYSE: HPT) - Outperform with a $12-$14 valuation range
- Host Hotels & Resorts - downgraded from Outperform to Market Perform with a $6.75-$7.75 valuation range
- DiamondRock Hospitality (NYSE: DRH) - Market Perform with a $5.50-$6.00 valuation range
- Marriott (NYSE: MAR) - Market Perform with a $19.50-$20.50 valuation range
- LaSalle Hotel Properties (NYSE: LHO) - Market Perform with a $9.75-$11.25 valuation range
- Choice Hotels (NYSE: CHH) - Market Perform with a $25-$27 valuation range
- Strategic Hotels & Resorts (NYSE: BEE) - Underperform with a $0.50-$1.00 valuation range
- FelCor Lodging Trust (NYSE: FCH) - Underperform with a $0.75-$1.25 valuation range
- Ashford Hospitality (NYSE: AHT) - Underperform with a $0.75-$1.25 valuation range
- Hersha Hospitality (NYSE: HT) - Underperform with a $1-$2 valuation range
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