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Starwood Upgraded as Capital Return Eyed

Tickers in this article: HOT

NEW YORK (TheStreet) -- Starwood Hotels got an upgrade to "buy" from Bank of America Thursday as analysts at the bank cited the potential "for a significant return of capital."

Starwood's price target also got a lift from the bank's analysts, to $84 from $70. The analysts also see the potential for asset sales "later in the cycle."

Hotel stocks have underperformed the market year to date, as revenue per available room (RevPAR) -- a closely watched industry metric, has been "volatile," according to Bank of America's analysts.

"One of the key lodging themes out of Q1 earnings was that a number of companies including Starwood, Marriott, Hyatt, Strategic and Ryman Hospitality, noted either a material slowdown in near-term group bookings or saw group cancellations. While management teams were hopeful that this was a 'blip,' we have continued to see group business in the U.S. materially underperform our expectations over the last 6 weeks, including the most recent data when easy comps should have supported a reacceleration," the analysts wrote.

Still, Starwood's focus on the high end should insulate it from the still-iffy economy, according to Bank of America's analysts. They also note that Starwood has outperformed competitors in China.

Furthermore, Starwood "remains the strongest unit growth story in the branded hotel industry driven by its strong international pipeline of development," the analysts write.

But the big story for Starwood is the potential for buybacks and dividends as certain key Starwood properties have steadily thrown off cash. Starwood is now "sitting on nearly $7 per share in capital returns," according to the analysts' calculations.

-- Written by Dan Freed in New York.