Wachovia Cuts Felcor Lodging to 'Underperform'

Analyst Jeffrey Donnelly thinks expectations for flat revenue per available room will hurt the hotel operator's earnings and valuation

Wachovia downgraded Felcor Lodging (FCH ) to underperform from market perform.

Analyst Jeffrey Donnelly says expectations for flat revenue per available room (RevPAR) growth, continued gross margin declines, and management's decision to cease paying a dividend and aggressively dispose of noncore assets could place signficant downward pressure on earnings per share and valuation.

He further cut the $1.74 2003 funds from operations estimate to $1.23. Based upon 2003 the earnings estimate (before interest, taxes, depreciation and amortization) of $270 million to $280 million, Donnelly estimates the fair value of shares to be in the $6.50 to $8.50 range.

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