Starwood Hotels & Resorts Worldwide Inc. (HOT) with its Luxury Collection brand plans to double its portfolio in South America. A gradual recovery of the global economy is pushing demand in the hotels and lodging industry. Thus the company in a franchise agreement with Libertador Hotels, Resorts & Spas plans to open three Luxury Collection hotels in Peru, of which two have already been opened.
 
The company opened its first luxury collection resort, Hotel Paracas, in Peru on January 12, 2010, and the second resort, Tambo del Inka, also in Peru on June 28, 2010. The third luxury collection hotel, Palacio del Inka, is expected to open in 2011.
 
The company is poised to benefit from the increase in demand for hotels. It has over half of its hotel properties outside the U.S., an international exposure that not many of its peers can boast. Additionally, over 80% of the company’s 85,000 room pipeline will be built in international markets. The demand for hotels in the international market is greater than in the U.S., as the pace of economic recovery is particularly fast outside U.S.
 
The company’s first-quarter operating earnings of 13 cents a share were well ahead of the Zacks Consensus Estimate earnings of 1 cent, primarily driven by better-than-expected revenue. The past few months have seen an improvement in RevPAR (Revenue per available room) throughout the industry.
 
Going forward, the company’s strong pipeline, significant international exposure, solid balance sheet, shift to a fee-based business model and a less capital-intensive timeshare business augur well.
 
We maintain a Zacks Rank #2 on Starwood, which translates into a short-term Buy recommendation.
 
Starwood will release its second quarter financial results on July 22, 2010.
 
Starwood is a leading worldwide hospitality company with a primary focus on property ownership, management and franchising. The company has 1,000 properties in 100 countries and 145,000 employees at its owned and managed properties.
 
Starwood derives the majority of its revenue from its full-service, luxury/upscale brands such as Sheraton, Westin, St. Regis, The Luxury Collection, W, Four Points by Sheraton, Le Meridien, AloftSM and ElementSM.
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