Highlights include Starwood Hotels & Resorts Worldwide, Inc. (HOT), Marriott International, Inc. (MAR) and Intercontinental Hotels Group Plc (IHG).

We are downgrading our rating on shares of Starwood Hotels & Resorts (HOT) from Hold to Sell.

The shares have climbed more than 135% since hitting lows in early March. In light of the current state of industry fundamentals, we consider the magnitude of this move to be unwarranted, and recommend that investors use the move as a selling opportunity.

The hotel industry is in the midst of a deeply challenging downturn, with 2009 average weekly revenue per available room, or RevPAR, down nearly 20% year-over-year. Although Starwood, like industry peers Marriott (MAR) and Intercontinental Hotels Group (IHG), has taken steps to significantly reduce expenses, the reductions will not be sufficient to offset the large declines in revenue.

Starwood management expects RevPAR at worldwide same-store company-operated hotels to decline 18% in 2009. Additionally, the company anticipates that RevPAR will decline 21% at worldwide branded same-store owned hotels during 2009.

Adding to these concerns, in our opinion, is the fact that the industry as a whole appears to be cutting room rates in an attempt to increase occupancy. We believe that this strategy could both increase the severity and length of the industry downturn, as we recently noted.

Although we believe that Starwood is well positioned for the long-term, we expect that operating conditions will weaken further before improving. We project declining revenues and earnings for Starwood over the next two years, as the company feels the impact of the lingering downturn.

Shares of HOT are currently trading at 10.7x our 2009 EBITDA estimate and 28.5x our 2009 EPS estimate. Given the current state of fundamentals in the industry, we consider these multiples to be excessive.

Our price target of $16.50 reflects a multiple of 9.0x our 2009 EBITDA estimate, and 20.0x our 2009 EPS estimate.
Read the full analyst report on “HOT”
Read the full analyst report on “MAR”
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