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Hotels Stocks: Room For Growth?

Marriott International is expected to release earnings after the close of trading today. Analysts are looking for earnings per share of $0.36 in the fourth quarter. Revenue is expected to come in at $3.58 billon.

Rachael Rothman, senior analyst covering the Restaurant, Gaming, Lodging, and Leisure industries for Susquehanna Financial Group has a neutral rating on Marriott International , and a price target of $43. Rothman wrote in her note that “our view that a recovery in management and franchise fees, good cash flow generation of about $800 million in 2010, and a smaller timeshare segment are already reflected in the stock’s valuation. We expect MAR shares to continue to lag lodging peers with greater operational/financial leverage in the upcycle,” said Rothman.

Joel Simkins, Analyst with Credit Suisse on the other hand has an outperform rating on the stock with target price of $48 a share.

Simkins points out “leaders of the lodging industry are extremely optimistic for 2011 and several years to come.” Industry experts haven’t been this bullish about the RevPAR growth since 2006. Revenue per room is a key metric in the hotel sector.

Top Pick: Starwood

Rothman and Simkins may not agree on Marriott but they’re both very bullish on Starwood .

Simkins said “transactions will still be heavily focused on gateway markets and upscale brands, which will push prices even higher for assets that fall into those categories. An improving transaction environment would be beneficial to Starwood.” Simkins has an outperform rating on the stock with $73.00 price target.

Rothman has a price target of $69 because Starwood is positioned for significant growth. Here’s why Rothman likes Starwood.

1) Concentration of brands within the higher end segments
2) Strong international presence
3) robust development pipeline

Emerging Markets

Branching out to emerging markets is key new unit growth. Simkins sees China as recurring theme. “Starwood currently has the most aggressive expansion plans into emerging markets with nearly 80% of its total pipeline coming online in countries that fall in the category,” said Simkins.

Simkins believes “bringing hotel brands into these burgeoning countries is not only important for the development pipeline, but also for exposing potential outbound travelers to international brands and hopefully building loyalty to those brands."

Disclosures:

Simkins does not own any of the stocks. Marriott International and Starwood Hotels are investment banking clients of Credit Suisse.
Rothman does not own any of Marriott International and Starwood Hotels
.
Rothman’s firm owns Starwood and Marriott.
SFG is a market maker in the securities of CHH, HST, H, MAR, OEH, HOT, WYN, and MGM.
SFG and/or its affiliates beneficially own 1% or more of the securities of HOT and MGM.


Tune in:

We’ll have full sector analysis at 340PM ET today on the Closing Belland when the numbers for Marriott comes out at 4PM ET.

Questions? Comments? Write toinvestoragenda@cnbc.com

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HOT
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MAR
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