) and Hilton Hotels (HLT
) to market perform from attractive.
Analyst Jake Fuller says the downgrade is due to two primary factors: Heightened top-line risks over the second half of 2002; and the growing concern over the sustainability and duration of a cyclical industry recovery.
Fuller says although valuations are at reasonable levels, he thinks investors should focus on gaming companies, which trade at lower multiples and should beat near-term estimates. He thinks gaming companies have more appealing growth prospects including Mandalay Bay Group and Boyd Gaming.
Looking beyond 2002, Fuller says he's concerned that Internet could yield pricing pressure on traditional hotel operators, which wouldn't bode well for Starwood and Hilton. He cut his $1.23 2002 earnings per share estimate to $1.21 for Starwood, and trimmed the $0.50 2002 estimate to $0.49 for Hilton.