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HOT's negative stock performance relative to MAR should narrow and close over the coming weeks/months.

Call to Action:

We expect HOT’s negative stock performance relative to MAR to narrow and close over the coming weeks/months due to the reactivation of HOT’s share repurchase plan.

Details:

  • Last night, HOT announced it intends to utilize the approximately $614 million remaining on its share repurchase authorization by year-end.
  • Based on yesterday's closing price per share, the potential repurchase is about 8 million shares or 4.1% of the outstanding shares. 
  • Since the Company did not repurchase any stock since October 2013, we expect HOT to be an aggressive buyer of shares over the next several weeks.
  • Recall last week’s Q1 earnings conference call where analysts and investors lodged a very intense and vocal challenge to management for the lack of any share repurchase activity as well as an under-levered balance sheet despite a very positive and upbeat lodging industry and company outlook.  Then, on Wednesday, Starwood announced the resignation of CFO Vasant Prabhu.
  • Based on the events over the past week, it may be safe to conclude the person preventing the share repurchase was Mr. Prabhu, himself.  

Implications:

  1. HOT average daily trading volume for the prior 10 and 20 days was:  2.18 million and 1.80 million shares respectively.
  2. Assuming average daily trading volume increases to 2.5 million shares per day and HOT is a 10% VWAP buyer (250,000 shares per day), the company could complete the repurchase transaction over 32 business days. 
  3. However, given the market announcement, HOT could be more aggressive as a percent of daily volume and thus complete the repurchase more quickly.
  4. Most recent data indicated HOT short interest of 2.3 million shares or 1.19% of the outstanding
  5. On a YTD basis, HOT -4.3% vs. MAR +18.6%, more than two standard deviations of underperformance.
  6. Over the last twelve months, HOT +17.9% vs. MAR +36.7%, a 3.2 standard deviation of underperformance.