Is Starwood Hotels & Resorts a Good Stock to Buy?

In this article, let's take a look at Starwood Hotels & Resorts Worldwide Inc. (HOT), a $12.25 billion market cap company, which operates as a hotel and leisure company worldwide.

Caxton Associates, the global macro hedge fund, disclosed owning 863,000 shares with an increase of 1626% from its prior filing. Meanwhile, the stock declined by 7% in the second quarter. So let's see some possible reasons for this tremendous long position.


We believe that the company can be more involved in the hotel industry in the next decade, driven by the loyalty program.

It will be important for the future performance of its growth in rooms and revenue per available room. RevPAR or revenue per available room might grow at a higher rate to achieve a higher long-term industry growth. The company has an attractive recurring fee business model that is characterized by switching costs. It's part of the business having low fixed costs while meeting capital requirements.

In international markets, the company has a good path for growth, in regions such as EMEA (Europe, Middle East, and Africa) and Asia-Pacific. The firm has an enviable scope, ranking in the top positions in every continent it operates.

Other Relevant Information

Further, on Aug. 12, the Board of Directors declared a regular quarterly dividend of $0.375 per share. Dividends of $1.5 on an annual basis yield 2.1% that trails the industry median. Also, it has repurchased 1.2 million shares at $105 million at an average price of $84.24 per share.

Revenues and EPS

Worldwide revenues increased 7.3% in constant dollars but decreased 2% in actual dollars. Revenues in North America increased 8.2% in constant dollars or 4.4% in actual dollars while, in international markets, revenues increased 6.3% in constant dollars or decreased 8.9% in actual dollars.

Earnings per share from continuing operations at $0.79 were lower when compared to $0.80 in the same quarter a year-ago. Excluding special items, EPS was $0.84 compared to $0.77.

More Hedge Funds Positions

Paulson disclosed ownership of 11.99 million shares of the company, worth more than $973 million, which account for roughly 4.5% of the total portfolio. Other hedge fund gurus like Leon Cooperman, John Paulson, Daniel Loeb and Jim Simons have initiated new positions in the stock while Ken Fisher upped his stake by 4.68% in Q2.

Daniel S. Och's OZ Management also disclosed on a SEC filing, owning 10,171,523 shares of the hotel, which represent 5.97% of the total shares outstanding. The new stake is up from the 6,272,127 disclosed for the second quarter.

Final Comment

Starwood is the world's largest operator of luxury and upscale hotels with more than 90% of its hotels managed or franchised in growing markets.

Starwood's performance manages to generate more than 30% in return on invested capital in the past years. I think the stock is quite friendly for long-term portfolios and is currently fairly priced with respect to the industry median.

Published on Aug 28, 2015
By Omar Venerio
Capital Markets, Derivatives and Financial Management Professor, Master in Finance and CFA candidate. I am an independent trader of stocks and options and passionate about the stock market.

Copyrighted 2020. Content published with author's permission.

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