Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Starwood Hotels & Resorts Worldwide Inc (HOT) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Starwood Hotels & Resorts Worldwide, Inc. is a hotel and leisure company. The Company’s hotel business is focused on the global operation of hotels and resorts primarily in the luxury and upper upscale segments of the lodging industry. The Company manages and operates its hotel business in three hotel segments: the Americas; Europe, Africa and the Middle East (EAME), and Asia Pacific. Its vacation ownership and residential business is a separate segment. The Company conducts its hotel and leisure business both directly and through its subsidiaries. It owns Starwood Vacation Ownership, Inc., a provider of vacation experiences through villa-style resorts and access to Starwood brands. The Starwood Preferred Guest program is its traveler, customer loyalty and multi-brand marketing program. The Company also develops, owns and operates vacation ownership resorts, and markets and sells the vacation ownership Interests in the resorts.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation. In addition, here is a post detailing what can be found within each individual company’s valuation.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$13,277,323,298||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.19||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||42.11%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||35.24||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||75.96||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.19||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||6.35||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Fail|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||-0.42%|
|MG Value based on 3% Growth||$32.37|
|MG Value based on 0% Growth||$18.98|
|Market Implied Growth Rate||13.37%|
|% of Intrinsic Value||460.27%|
Starwood Hotels & Resorts Worldwide Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.3 in 2012 to an estimated $2.23 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.37% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Starwood Hotels & Resorts Worldwide Inc revealed the company was trading above its Graham Number of $3.29. The company pays a dividend of $1.5 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 35.24, which was above the industry average of 21.46. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-26.16.
Starwood Hotels & Resorts Worldwide Inc scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$26.16|
|Number of Consecutive Years of Dividend Growth||7|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||6/1/2016|
|Total Current Assets||$2,353,000,000|
|Total Current Liabilities||$1,978,000,000|
|Shares Outstanding (Diluted Average)||168,000,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$0.47|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.23|
Other ModernGraham posts about the company
|Starwood Hotels & Resorts Worldwide Inc. Analysis – July 2015 Update $HOT|
|17 Companies in the Spotlight This Week – 7/19/14|
|Starwood Hotels & Resorts Annual Valuation – 2014 $HOT|
Other ModernGraham posts about related companies
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.