Several analysts who follow the lodging sector argue it is fully priced at best, and may be vulnerable to a selloff. Frank Lee, analyst at Creditsights, says weak fundamentals in the industry were highlighted last week when Starwood Hotels withdrew earnings guidance for the first quarter and the year. The company said the uncertain impact of the war made forecasting impossible. Starwood's quickness to pull guidance with the war less than a week old suggests that the company was already likely to lower its estimates, and could finish the year well below the projections it made in January, Lee says.
Starwood's 7.375% notes of '07 (Ba1/BBB+) were trading at 99 last Wednesday. Lee says the bonds will not appreciate, and therefore does not recommend them to total return investors. He is similarly unenthusiastic about FelCor Lodging Trust Inc. (Ba3/B+), MeriStar Hospitality (B2/B-) and Host Marriott Corp. (Ba3/B+).
Andrew Susser, head of high-yield research at Banc of America Securities, says the entire sector is overpriced, and sees potential drops of five to 10 points for certain credits, though he declines to give specific names. "People have a lot of cash and are looking beyond the war. My issue is that the problems of the lodging industry are more long term in nature than just 'people aren't travelling because of geopolitical concerns.'" Susser argues that the travel industry has remained depressed since Sept. 11. Oversupply is creating pricing pressures, which are exacerbated by the Internet, he says.
