Why Starwood Hotels & Resorts Worldwide (HOT) Was Upgraded

Story updated at 9:40 a.m. to reflect market activity.

NEW YORK (TheStreet) -- Starwood Hotels & Resorts Worldwide (HOT) was upgraded to "buy" from "neutral" by UBS Friday.

Starwood Hotels & Resorts Worldwide gained 1.7% to $76.65.

The firm set a price target of $85 for the hotel operator, up from its previous $75. Analysts Robin M. Farley and Arpine Kocharyan said they have a favorable outlook for Starwood following Thursday's pullback.

The analysts wrote their favorable outlook is due to "1) China RevPAR improving, RevPAR at +3.5% in Q4 from +1.6% in Q3, sequential improvement after a couple of qtrs with missed or lowered China guidance, and mgmt expects China RevPAR up more than Q4 growth of +3.5% 2) continued strength in N. Am (with Q4 RevPAR +6.1%, higher end of +5-6% guidance) and 3) ample flexibility on balance sheet for buybacks even if asset sales are more weighted toward later in the cycle."

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Separately, TheStreet Ratings team rates STARWOOD HOTELS&RESORTS WRLD as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate STARWOOD HOTELS&RESORTS WRLD (HOT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, reasonable valuation levels, growth in earnings per share and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • HOT's revenue growth has slightly outpaced the industry average of 3.8%. Since the same quarter one year prior, revenues slightly increased by 3.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • STARWOOD HOTELS&RESORTS WRLD has improved earnings per share by 8.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, STARWOOD HOTELS&RESORTS WRLD reported lower earnings of $2.39 versus $2.57 in the prior year. This year, the market expects an improvement in earnings ($2.95 versus $2.39).
  • Despite currently having a low debt-to-equity ratio of 0.47, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.79 is weak.

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