Hotels Gain on Upgrade

Hotel stocks rallied Tuesday after Banc of America Securities upgraded Starwood Hotels (HOT Quote), Host Marriott (HMT Quote) and Hilton Hotels (HLT Quote) to buy, telling investors the sector was on the verge of a second leg of a bull run.

According to analyst Jeremy Cogan, hotel stocks are due for significant upside over the next two years, driven by better-than-expected room rates, tight supplies and increasing demand for lodging. After touring more than 20 hotels in four key markets, the analyst raised his 2005 estimates for earnings per share and revenue per available room, a key industry metric also known as revpar.

"Our lodging index has now cooled a bit in 2004 -- just as lodging stocks did in 1994 -- as interest rates go higher and investors take a break to survey the future profit landscape," Cogan said. "If the cycle truly repeats, the 'second leg of the lightning bolt' -- another meaningful bull move for lodging stocks -- could be coming next [and] could last roughly two years." (Bank of America does and seeks to do business with the companies covered in its research reports.) ...