Majestic Research

TheStreet.com

Terror Plot Hits Hotel Stocks

By Nicholas Yulico
Published: August 10, 2006

Hotel stocks fell in morning trading Thursday as a thwarted terrorism plot involving airplanes led to renewed investor fears about travel.

Intercontinental Hotels Group (IHG) dropped 60 cents, or 3.6%, to $15.96; Starwood (HOT) fell $1.62, or 3.1%, to $50.74; and Hilton (HLT) declined 80 cents, or 3.3%, to $23.51.

“This is not a day where you want to overreact crazy,” says Dean Frankel, a portfolio manager with Urdang Securities Management, which invests in hotel stocks. Thursday’s concerns won’t be a long-term drag on the lodging sector, he says.

Frankel says that if the stocks fall further it could open up a nice buying opportunity for the sector. Lodging companies, especially those catering to the high-end business traveler and vacationer, continue to report very good fundamentals because of strong demand and a limited amount of new supply.

The recent strength of the sector was evidenced by Four Seasons’ (FS) earnings report Thursday.

The luxury-hotel operator said its earnings fell 42% from a year earlier due to higher tax expenses. But excluding certain items, Four Seasons’ earnings rose to $17.1 million, or 46 cents a share, from $13.8 million, or 36 cents a share, a year earlier. The results beat analysts’ average estimate of 42 cents, according to Thomson First Call.

The company said revenue per available room at its same-store worldwide properties rose 12.1%, while gross operating margins increased by 150 basis points at these hotels to 33.9%.

Four Seasons shares recently were up $3.26, or 6%, to $57.67.

Casino stocks held up fairly well on the terror-plot news. Las Vegas Sands (LVS) , however, fell 1.3% to $59.74. The company relies on high-roller gamblers who often fly from Asia to its Venetian casino in Las Vegas.

“If there are continued concerns about terrorism that really restricts airline travel, then it becomes a concern for the casino industry,” says Matthew Jacob, a leisure and casino analyst at Majestic Research.

He points out that the industry suffered after 9/11, but recovered pretty strongly. “In the past, the stocks rebounded and have been pretty resilient,” he says.