Shares of Host Hotels & Resorts (HST) jumped 2.0 % during today's afternoon session, bringing their 52 week performance to 4.8%. The stock seems to be undervalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account growth metrics and market sentiment -- which can shed light on the stock's long term and short term prospects respectively.
Host Hotels & Resorts, Inc. is an S&P 500 company and is the largest lodging real estate investment trust and one of the largest owners of luxury and upper-upscale hotels. The large-cap Real Estate company is based in Bethesda, United States and has 160 full time employees.
HST's P/E Ratio Is Comparable to its Sector Average
Compared to the Real Estate sector's average of 27.16, Host Hotels & Resorts has a trailing twelve month price to earnings (P/E) ratio of 16.4 a. based on its trailing 12 month Eps of $1.11.
Earnings is another term for the net profits left over after subtracting cost of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Host Hotels & Resorts's P/E ratio is near its sector average of 27.16, we can deduce that the market is fairly valuing the company's earnings.
HST Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Host Hotels & Resorts, the P/B value is 1.9 while the average for the Real Estate sector is 2.39.
HST Is Generating Cash
Host Hotels & Resorts has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 22.2%, compared to None% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 22.2% and a coefficient of variability of 123.1%:
| Date Reported | Cash Flow from Operations ($) | Capital expenditures ($) | Free Cash Flow ($) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 292,000,000.0 | n/a | 292,000,000.0 | 195.11 |
| 2020-12-31 | -307,000,000.0 | n/a | -307,000,000.0 | -124.56 |
| 2019-12-31 | 1,250,000,000.0 | n/a | 1,250,000,000.0 | -3.85 |
| 2018-12-31 | 1,300,000,000.0 | n/a | 1,300,000,000.0 | n/a |
Host Hotels & Resorts Is Not a Profitable Business
If you are looking to make HST a long term investment, its weak margins may give you cause for concern. As you can see from the below, the company is generally losing money on each sale it makes. That being said, stock prices in the short term can be independent of a company's margins, and Host Hotels & Resorts's management may be able to make the business profitable in the future.
Host Hotels & Resorts's Gross Margins
| Date Reported | Revenue ($) | Cost of Revenue ($) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 2,921,000,000.0 | 2,277,000,000.0 | 22.05 | 313.87 |
| 2020-12-31 | 1,590,000,000.0 | 1,754,000,000.0 | -10.31 | -135.53 |
| 2019-12-31 | 5,483,000,000.0 | 3,892,000,000.0 | 29.02 | 0.66 |
| 2018-12-31 | 5,554,000,000.0 | 3,953,000,000.0 | 28.83 | n/a |
Host Hotels & Resorts's Operating Margins
| Date Reported | Total Revenue ($) | Operating Expenses ($) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 2,921,000,000.0 | 3,046,000,000.0 | -4.28 | 92.59 |
| 2020-12-31 | 1,590,000,000.0 | 2,508,000,000.0 | -57.74 | -485.19 |
| 2019-12-31 | 5,483,000,000.0 | 4,661,000,000.0 | 14.99 | 2.39 |
| 2018-12-31 | 5,554,000,000.0 | 4,741,000,000.0 | 14.64 | n/a |
Host Hotels & Resorts's cost of revenue is growing at a rate of -21.5% in contrast to -8.8% for operating expenses. Sales revenues, on the other hand, have experienced a 3.8% growth rate. As a result, the average gross margins growth is 59.7 and the average operating margins growth rate is -130.1, with coefficients of variability of 107.8% and 423.6% respectively.
Host Hotels & Resorts Benefits From Positive Market Signals
The market sentiment regarding Host Hotels & Resorts is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $25 to $16. HST is trading -14.95% away from its target price of $21.44. 6.6% of the company's shares are tied to short positions, and 103.6% of the shares are held by institutional investors.
In conclusion, we see that Host Hotels & Resorts shares are undervalued with mostly positive market sentiment. As indicated above, the company has inconsistent margins and cash flows, but those are due to the industry specific challenges of the Covid 19 pandemic, and do not reflect structural challenges to the business. Make sure to subscribe to our free weekly newsletter to stay on top of the market!
