Starwood Hotels No Longer So Hot

We continue to believe that Starwood Hotels & Resorts Worldwide Inc.’s (HOT) well-positioned portfolio will benefit given an increase in demand. However, we currently do not expect an improvement in the operating environment in the near term, and we expect that challenges will persist through 2009. Therefore, we have downgraded our rating on shares from Buy to Hold. Our price target of $20 reflects an enterprise value/EBITDA multiple of 7.0x our 2009 EBITDA estimate.

While the slowing economy has been evident for some time, we had previously expected Starwood to outperform its peers in part due to its concentration in high-end properties, its international exposure, and its relatively limited timeshare business. Although third-quarter results exceeded our expectation, a portion of the upside was due to timing. Also, management’s outlook regarding the fourth quarter and 2009 make clear the fact that the economic factors will hurt Starwood more than we had originally anticipated.

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