UBS Warburg Reports Lodging Stocks Overvalued

NEW YORK— Based on earnings forecasts for the next 12 to 24 months, UBS Warburg reported that it believes lodging stocks are overvalued. While UBS Warburg expects the economy will rebound, it feels public lodging companies are late cyclicals due to their reliance on business travel for earnings growth. Trends in business travel lag the economy by at least 3-6 months with optimal revenue growth occurring 6-12 months later, UBS Warburg said. The firm believes lodging stocks could decline beginning in late January when lodging companies report fourth quarter earnings and do not increase their 2002 RevPAR and earnings expectations. A sustained stock price rally is not expected to occur until late 2002. With the exception of possibly Houston, UBS Warburg does not believe hotel revenue trends are improving in the larger U.S. markets, which it surveyed last week through conversations with hotel contacts. The firm forecasts increasing competition for securing group business in 2002 and meeting planners being more aggressive in negotiating 2002 room rates, leaving some lodging company’s with 2002 RevPAR and earnings expectations that are too high. Reviewing its 2002 earnings estimates relative to Wall Street analysts’ consensus, UBS Warburg believes the greatest earnings risk exists for Starwood Hotels, Hilton Hotels, FelCor Lodging, and MeriStar Hospitality. Moreover, the firm believes some lodging company valuation multiples are well ahead of themselves and that the risk exists that lodging stocks will fall back considerably over the next several months. UBS Warburg stated FelCor Lodging, Starwood Hotels, Host Marriott, Four Seasons Hotels, and Marriott International remain the most overvalued.