Starwood Books an Earnings Beat

Editor's note: "Bricks and Mortar" is a mock portfolio created by Senior Writer Nicholas Yulico that is meant to help generate real estate and gaming-related stock ideas. In keeping with TSC's editorial policy, Yulico doesn't own or short individual stocks.

Starwood Hotels HOT beat first-quarter earnings estimates before the opening bell Thursday, and the hotel operator raised its guidance for the year because of strong international operations. Shares rose 5% to $52.09 in recent trading Thursday morning.

Adjusted earnings per share were 44 cents, beating the consensus analyst estimate of 25 cents, according to Thomson Financial. Worldwide revenue per available room (Revpar), a key hotel operating metric, rose 8.4%, while North America remained weak at 2.9% growth.

For the year, Starwood increased its Revpar guidance to 8% to 10% worldwide (from 4% to 7%), and the company essentially kept the full-year EPS guidance intact, at $2.40 to $2.58.

The stock is now trading around 10 times trailing EBITDA, which is below the 12 times average multiple going back to 2001, according to data from SNL Financial.

Given Starwood's strong international growth platform and its propensity to use free cash flow to buy back shares (roughly 3% of the outstanding stock was repurchased by the firm in the quarter), I continue to like Starwood shares at these levels.

Homebuilders: Pulte, Ryland

The spring selling season is looking to be another dud for homebuilders. Pulte Homes PHM and Ryland RYL both reported large quarterly losses, as expected, following the market close Wednesday, and new order trends remained weak for both builders.

I continue to flag Pulte and Ryland as overvalued, and neither company's earnings reports contained enough positive news to change my ratings.

Next Tuesday, the Federal Reserve is expected to cut the fed funds rate another 25 basis points. Over the past few months, homebuilder stocks have generally rallied around interest rate cuts.

Some market watchers are now saying this may be the last rate cut, due to rising inflation worries. I suspect the homebuilder stocks might prove weak this time around the Fed cuts, as investors begin to realize that all the band-aids thrown at the housing industry won't stop the massive bleeding anytime soon.