FBR Capital Markets upgraded its rating on shares of Marriott International, Inc. (NYSE: MAR) to outperform from market perform with a price target of $43.

Marriott has significantly underperformed lodging peers and the S&P over the past 12 months and is now trading at about 10 times of 2012 equity value/EBITDA; we see shares as very attractively valued. Six months ago during Marriott's investor day, we believed Marriott stock (including timeshare) could approach $60 by the end of 2013, which at that time was a respectable 15 percent three-year compound annual growth rate (CAGR), said Patrick Scholes, an analyst at FBR Capital Markets.

Scholes still believes it could worth nearly $60 by the end of 2013 and with the stock $2 cheaper than it was on the investor day, and 2013 now six months closer, the potential CAGR is more than 20 percent.

Management did a decent job in explaining the first quarter RevPAR (revenue per available room) underperformance, which was something that made Scholes nervous going into Marriott's earnings, although he still is not entirely sure (and probably never will be) if the sales force realignment had something to do with it.

Scholes completely agrees with management that March was an extremely strong month for forward bookings. This strong demand gives him confidence that the lodging stock up-cycle still has legs.

Marriott cited NYC as a weak spot first quarter. Going forward, Scholes does not see NYC as a drag on the company. Based on channel checks, he sees NYC demand beginning to pick up steam in May, with room rates up in the mid-to-high single digits through the summer (although no occupancy growth).

There has been recent discussion that Marriott will need to show significant valuation multiple expansion post the timeshare spin-off in order to have share price growth. We disagree, said Scholes.

Per sum-of-the-parts analysis, if Scholes completely removes timeshare EBITDA, leave net debt levels unchanged, give Marriott $50 million in additional fee income from the timeshare licensing, and give the remaining Marriott hotel businesses an about 13.5 times of EBITDA multiple, he can still derive a $40 stock price. To this, he believes investors would also be receiving about $2 to $4 per share in value from the new timeshare company.

Following first quarter results that were slightly below FBR Capital's expectations, the brokerage lowered its 2011 EPS estimate to $1.44 from $1.48 and its 2012 estimate to $1.79 from $1.86.

Marriott stock closed Thursday's regular trading up 1.67 percent at $35.87 on the NYSE.