Host Hotels & Resorts, Inc. (HST) in Bethesda, Md., is the largest lodging REIT and one of the major owners of luxury and upper-upscale hotels. The company currently owns 75 facilities in the United States and five properties outside of the United States, totaling around 44,400 rooms. It also has non-controlling interests in seven domestic joint ventures and one foreign joint venture.

It reported $998 million in revenue for the quarter ended Dec. 31, 2021, compared to $267 million in the prior year. Furthermore, the hotel real estate investment trust was expected to report a $0.14 per share FFO but in fact earned an FFO of $0.20, representing a 42.86% surprise. The company’s shares have gained 8.3% in price over the past six months to close yesterday’s trading session at $17.95.

However, the stock has a record of weakness. It has declined 6.9% in price over the past three years. Furthermore, its revenue and EBITDA have declined at a 19.3% CAGR and 28.6%, respectively, over the past three years.

Here’s what could shape HST’s performance in the near term:

Poor Profitability

HST’s trailing-12-months gross profit margin of 22.1% is 67.4% lower than its industry average of 67.6%. Also, HST’s ROA, net income margin and ROC are negative 0.09%, 0.38%, and 0.63%, respectively. Furthermore, its trailing-12-month EBITDA margin of 18.7% is 66.8% lower than its industry average of 56.2%.

Impressive Growth Prospects

The Street expects HST’s revenues and EPS to rise 51.2% and 2100% year-over-year to $4.37 billion and $0.4, respectively, in its fiscal year 2022. In addition, HST’s EPS is expected to rise at a 28.4% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history;it topped Street EPS estimates in three of the trailing four quarters.

POWR Ratings Reflect Uncertainty

HST has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. HST has a D grade for Stability and Quality. The stock’s 1.29  beta is consistent with the Stability grade. In addition, its poor profitability is in sync with the Quality grade.

Of the 19 stocks in the F-rated REITs – Hotels industry, HST is ranked #8.

Beyond what I’ve stated above, you can view HST ratings for Growth, Momentum, Value, and Sentiment here.

Bottom Line

While HST’s increasing investments across business segments and stable growth prospects should bolster its long-term prospects, its negative profit margins could concern investors. So, we believe investors should wait for its prospects to stabilize before scooping up the share.

How Does Host Hotels & Resorts Inc. (HST) Stack Up Against its Peers?

While HST has an overall C rating, one might want to consider its industry peer, Megaworld Corporation (MGAWY), which has an overall B (Buy) rating.

HST shares were unchanged in premarket trading Friday. Year-to-date, HST has gained 3.38%, versus a -5.22% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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