All American Hotel Analyst Picks Winners And Losers For 2010
November 30, 2009 - The Wall Street Transcript has just published Travel and Leisure--Airlines, Hotels, Resorts, Cruise Lines, and Restaurants Report offering a timely review of the sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Felicia R. Hendrix joined Barclays Capital in September 2008, and is currently a Managing Director and Senior Research Analyst who follows the leisure sector.
Prior to joining Barclays Capital, Ms. Hendrix was at Lehman Brothers, where she began in April 1998. At Lehman she began following the leisure sector in February 2000, and the gaming and lodging sector in 2004. Ms. Hendrix achieved second-team status in Institutional Investor's All-America Research Team for the leisure sector from 2002 to 2005, and she achieved third-team status from 2006 to 2009. In 2009 she was also voted runner-up in gaming and lodging. Prior to assuming coverage of the leisure sector, Ms. Hendrix was a Research Associate who covered the gaming sector.
Before joining Lehman Brothers, she was a Research Associate at Gerard Klauer Mattison & Co., where she also followed the gaming sector. Ms. Hendrix began her Wall Street career as an institutional equities salesperson at Needham & Co. She earned a B.A. from the University of Virginia and an MBA from the Darden Graduate School of Business. Ms. Hendrix is married with two children.
TWST: Let's switch over to hotel companies. Among the companies you cover, generally speaking, how are they performing and how healthy are their balance sheets?
Ms. Hendrix: Balance sheets are extremely healthy. I think since the last recession, focus has always been on the balance sheets, and through this one certainly. With many companies getting close to breaching covenants, everyone worked very hard to either amend credit facilities or to improve liquidity, cut dividends, cut cap ex in the industries that I cover, in general. Balance sheets are solid.
As far as performance, the lodging stocks as of July 1 basically have been on fire. In the past six months, Starwood (HOT) is up 135%, Marriott (MAR) is up 61%, Host Hotels (HST) is up 178%, clearly outperforming the 30% S&P increase in the past six months. And what was driving that was the stocks got to historically low valuations, and folks looked at these stocks and they said, "Okay, I know that there is risk in 2009, I know there is risk in 2010, but these are good solid businesses; they are cyclical stocks. And in 2011 and 2012, the performance of these stocks is going to look a lot different than today. And we are going to buy these stocks today for then."
As you may know, I downgraded this sector on July 1 to a sell. Starwood and Marriott and Choice (CHH) are sells. Host, I've kept my equal-weight rating. A good part of the downgrade came from the belief, and this has definitely manifested itself, that numbers at the time were too high. Those have come down. The industry is really suffering since this recession's recovery is going to be slower than it historically has. I just wasn't ready to give these companies credit today for something that will happen in 2011 and 2012. Did I underestimate the power of the investment community wanting to look out past 2009 and 2010? Yes, lesson learned.
But these businesses are still recovering. Pricing is still going to be down next year. The folks who were buying up for 2011 and 2012 were looking at normalized valuation. Our estimate for normalized valuation for Starwood is $26, and it's now $32; for Marriott $27, and it is $27. So the question that a lot of people are asking right now, including me, is, "Is the 2011 and 2012 recovery now fully priced into these stocks and do you buy them now?"
A lot of people who missed this massive move are struggling with that exact point. Some of them are short the stocks and the question that they are asking is, "Well, I'm short these stocks, but what drives them down is the majority of the investment community is looking out so far." There are not a lot of answers to that. So they are really tough stocks where they are right now.
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