High-end hotel management company Starwood Hotels & Resorts Worldwide (HOT) has a plan to transform the company business model away from hotel ownership toward a fee-based management approach. At the same time, the focus on growth is through the increase of international properties, along with emphasis on rate expansion in the United States.
Starwood Hotels & Resorts owns and manages a worldwide inventory of hotel properties. Company brands include St. Regis, The Luxury Collection, W Hotels, Sheraton, Le Meridian, Aloft, and Element. The company generates about 10 percent of revenues from the sale of vacation ownership units. Major competitors include Marriott International (MAR) and Hyatt Hotels (H).
For the first six months of 2011 reported net income was 82 cents per share, up from 77 cents a year earlier. However, income from continuing operations for the period was $179 million, a significant improvement on the $109 million earned in 2010. Starwood periodically generates income from the sale of hotel properties which are then usually signed to long term management contracts. The consensus EPS forecasts are $1.74 in 2011 and $2.33 for 2012, compared to $1.25 earned in 2010.
A major focus for Starwood is to transform the revenue stream from sales of owned and leased hotels to a fee structure for managing properties owned by others. The target is 80 percent fee-based revenues. From 2000 until 2010, the percentage of fee revenue has increased from 16 percent of total sales to 57 percent.
The other growth initiative is international properties. From 70 percent of sales inside the United States in 2000, the company now generates 62 percent of revenues in international markets. More than 70,000 new hotel rooms are in the international pipeline representing 50 percent growth over the current number of rooms.
The analysts at Deutsche Bank recently initiated coverage on HOT with a buy rating. Credit Suisse analysts recently lowered their earnings and target price estimates but maintained an outperform rating on the stock.
The company reports next on Oct. 27.
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