Up 9% in the past six months, will it continue to rally?

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Shares of Host Hotels & Resorts (HST) have gained nearly 9% in price over the past six months. So, let’s assess whether it’s worth betting on the stock now, given the company’s poor profitability, even amid the growing hosting industry. Continue reading.


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

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

However, the stock has a history of weakness. Its price has dropped by 6.9% over the past three years. Additionally, its revenue and EBITDA have declined at a CAGR of 19.3% and 28.6%, respectively, over the past three years.

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

Low profitability

HST trailing 12-month gross profit margin of 22.1% is 67.4% below the industry average of 67.6%. Furthermore, the ROA of HST, net profit margin and ROC are negative by 0.09%, 0.38% and 0.63%, respectively. Additionally, its trailing 12-month EBITDA margin of 18.7% is 66.8% below the industry average of 56.2%.

Impressive growth prospects

The Street expects HST’s revenue and EPS to grow 51.2% and 2,100% year-over-year to $4.37 billion and $0.4, respectively, in in its 2022 fiscal year. Additionally, HST’s EPS is expected to grow at a CAGR of 28.4% over the next five years. Additionally, the company has an impressive track record of earnings surprises; it has exceeded Street EPS estimates in three of the past four quarters.

POWR ratings reflect uncertainty

HST has an overall C rating, which equates to a neutral in our exclusive ownership POWR Rankings system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight different categories. HST has a D rating for stability and quality. The stock’s beta of 1.29 is consistent with the Stability rating. In addition, its low profitability is in line with the Quality rating.

Of the 19 shares listed F 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.

Conclusion

While HST’s growing investments across all business segments and stable growth prospects should bolster its long-term prospects, its negative profit margins could worry investors. So we think investors should wait for its outlook to stabilize before buying the share.

How does Host Hotels & Resorts Inc. (HST) compare to its peers?

Although HST has an overall rating of C, one might consider its industry counterpart, Megaworld Corporation (MGAWY), which has an overall rating of B (buy).


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

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