Zacks Analyst Interview Highlights: Carnival, Marriott and Starwood Hotels

Business Wire, June 25, 2008

CHICAGO -- Zacks.com releases the latest Analyst Interview. Today's interview is with senior analyst Sean P. Smith, who discusses Carnival Corp. (NYSE: CCL), Marriott International (NYSE: MAR) and Starwood Hotels & Resorts (NYSE: HOT).

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Is there some negative sentiment in the cruise line industry overall, presently?

Carnival (NYSE: CCL) did exceed the consensus earnings estimate in the most recent quarter, but the company also lowered its full-year outlook. Top-line revenue and booking trends have remained resilient, although the cruise companies are experiencing lower on-board spending in light of the current economic downturn.

The high cost of fuel, however, is having a significant negative impact on the bottom lines of the cruise companies. Carnival expects that fuel expenses in 2008 will be $752 million greater than in 2007, reducing 2008 earnings by $0.92 per share. With the stock currently trading at a multiple of roughly 13x expected 2008 EPS, the negative impact exerted on the share price by the higher fuel expenses is substantial.

What about the hotel industry? What trends do you see here?

The hotel industry is feeling the impact of the weak U.S. economy. For example, Marriott (NYSE: MAR) recently lowered its outlook for second-quarter revenue per available room (RevPAR) growth in North America to approximately 2%, down from the company's previous expectation of 3% to 5%. The company also stated that it would be surprised if the current RevPAR environment in North America improved in the second half of the year.

With individual consumers feeling pressures from the declining housing market, high gas prices and an increasing rate of inflation, hotel companies are limited in their ability to push room rates higher. The increasing focus on cost-cutting by U.S. corporations extends this pressure to business travel, which is the most profitable segment for lodging companies.

Do you have any top Buys for us at this time?

On the lodging side of the industry, we have a Buy rating on Starwood Hotels & Resorts (NYSE: HOT). We believe that the company's geographically diverse, high-end portfolio is well positioned for the long-term.

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