If the hotel recovery is for real, investors will get their first official signal from management next week, when industry members begin releasing first-quarter results.

On April 22, both Starwood Hotels ( HOT) and Marriott International ( MAR) release results, and judging from the first three months of 2004, business will be strong.

Along with the broader economy, the industry is picking up steam as business travelers return to meeting rooms and convention-goers pack hotel lobbies. But with hotel managements expressing caution during the fourth-quarter earnings season, this quarter looms large, and will help determine if stocks are overvalued or in for additional upside.

Expectations have been rising because a key industry metric called revpar, or revenue per available room, has been growing in the first quarter. Some of the growth is due to easy comparisons -- the war in Iraq a year ago depressed first-quarter travel demand -- but there is also renewed strength across the board.

"We now estimate that Revpar increased approximately 9% to 11% during March, which is the most important month during the first quarter from an earnings standpoint," said William Crow, hotel analyst at Raymond James. "Industrywide, revpar improved by 5.8% and 5.3%, respectively, during January and February."

Revpar Revs Up

Indeed, according to data from industry-tracker Smith Travel Research, hotel companies finished the first quarter on a strong note. Through the week ended April 3, revpar for U.S. hotels grew for the 23rd time in the last 24 weeks, gaining 11.8%.

Wall Street brokerages have been boosting estimates as a result. Thomas Weisel Partners Monday raised earnings estimates for Starwood and Marriott, telling investors that revenue growth was ahead of expectations. But unlike the Dow Jones Casino Index, which has jumped more than 25% in 2004 on positive earnings guidance across the board, the Dow Jones Hotel & Lodging Index is up about 4% because companies have been muting their optimism.

Shining Star
Since boosting guidance, Starwood has become the hot property of hotels
Company Release Date Q1 EPS* Upgrades** Downgrades**
Choice Hotels April 21 0.29 1 0
Starwood April 22 0.09 4 1
Marriott April 22 0.42 0 0
Fairmont Hotels April 27 0.11 0 1
Hilton April 28 0.06 1 0
Host Marriott April 28 -0.07 0 0
Prime Hospitality April 29 -0.05 0 0
Four Seasons May 6 0.15 2 0
*Forecast as of April 13.
**Year to date.
Source: Thomson One Analytics, Bloomberg, TSC research

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