Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Starwood Hotels and Resorts Worldwide (NYSE:HOT) rose as much as 10% on Tuesday as the company reported expectation-beating fourth-quarter earnings and simultaneously announced plans to spin off its timeshare business.
So what: Starwood earned $0.97 per share in the fourth quarter (excluding special items), well ahead of the $0.76 consensus estimate.
However, the news that it will spin off Starwood Vacation Ownership looks more interesting. The timeshare segment contributed roughly 11% of Starwood's 2014 revenue.
On the timing of the spinoff, which the company hopes to complete by the end of the year, Starwood CEO Frits van Paasschen commented:
This is the right time for us to spin off our vacation ownership business and move Starwood forward in its asset light strategy. Not only does SVO [Starwood Vacation Ownership] continue to have a great outlook for growth, but valuations for timeshare companies are at attractive levels.
He's not wrong. SVO's revenue rose 15.2% year over year in the fourth quarter after four straight quarters of flat or declining sales growth. On the issue of valuations, it's worth noting that both Marriott International (NASDAQ:MAR) and the timeshare business it spun off in November 2011, Marriott Vacations Worldwide (NYSE:VAC), have wildly outperformed Starwood Hotels since that point:
Starwood is the only one of the three stocks that has failed to keep pace with the S&P 500 during that period.
Now what: As the U.S. economy continues to strengthen, business prospects for Starwood Hotels improve. However, investors might want to shift their focus toward Starwood Vacation Ownership in the run-up to the spinoff -- historically, value investors have earned tidy returns from these (and other) "special situations."
Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.