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 (MAR -0.59%) and the timeshare business it spun off in November 2011, Marriott Vacations Worldwide (VAC -2.33%), 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."
