Two Hotel Stocks for Summer

Thursday, 14 Apr 2011 03:44 PM

By Dan Weil

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Summertime means travel, and with consumers and businesses finally starting to open their purse-strings, it could be a good season for hotels. Family vacation spots and corporate retreats should see more visitors than either of the last two summers, when worries ran rampant about the economy.

More visitors, of course, means more revenue, which should support hotel company stocks. Two strong companies to consider are Starwood Hotels & Resorts Worldwide (HOT) and Marriott International (MAR).

Starwood

Starwood, a luxury hotel conglomerate that includes the St. Regis and W brands, saw its profit increase more than sixfold last year, to $477 million from $73 million in 2009.

The entire hotel sector rebounded in 2010, and luxury properties came back the strongest, benefiting Starwood.

“We ended 2010 with a strong fourth quarter and momentum has continued into 2011,” Starwood Chief Executive Officer Frits van Paasschen said in a statement.

“Starwood is well-positioned to capitalize on the rapid growth in emerging markets. In developed markets, tight supply should support rate increases.”

Starwood has smartly shifted from volatile ownership of properties to more stable management and franchise contracts.

“This is a great company run by a terrific guy, Frits van Paasschen,” CNBC’s Jim Cramer said last month. Earlier this year, he called it “one of the sexiest stories out there.”

Marriott

Marriott, which owns the JW Marriott and Ritz-Carlton brands, reported a profit of $458 million last year, reversing a loss of $346 million in 2009. The global economic recovery spurred more hotel use by corporations. That particularly helped Marriott, as business travelers account for about 70 percent of its revenue.

Marriott announced in February that it would spin off its timeshare unit into a separate company. Analysts viewed the spinoff positively because the timeshare division was a drag on earnings. The unit focuses on real estate development, which was hammered during the recession.

Analysts are enthusiastic about Marriott going forward. “For 2011, we project that base management fees, franchise fees, and incentive management fees combined will increase over 10 percent,” writes Esther Kwon, an analyst for Standard & Poor’s.

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