HST Falls -4.7% Today. Are They Close to Their Intrinsic Value?

Standing out among the Street's worst performers today is Host Hotels & Resorts, a hotel & motel real estate investment trust company whose shares slumped -4.7% to a price of $17.7, 17.47% below its average analyst target price of $21.44. The average analyst rating for the stock is buy. HST underperformed the S&P 500 index by -2.7% during today's afternoon session, but outpaced it by 24.4% over the last year with a return of 13.1%.

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 company is classified within the real estate sector, which includes REITs (Real Estate Investment Trusts, and real estate services and development companies. The sector’s value and performance is, for obvious reasons, strongly correlated with the value of real estate, but some real estate companies, which provide only services for example, may show some resistance to cycles within the real estate market.

Host Hotels & Resorts's trailing 12 month P/E ratio is 15.7, based on its trailing Eps of $1.13. The company has a forward P/E ratio of 19.0 according to its forward Eps of $0.93 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the real estate sector has an average P/E ratio of 27.16, and the average for the S&P 500 is 15.97.

A significant limitation with the price to earnings analysis is that it doesn’t account for investors’ growth expectations in the company. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. Conversely, companies with high P/E ratios may be fairly valued in terms of growth expectations.

When we divide Host Hotels & Resorts's P/E ratio by its projected 5 year earnings growth rate, we see that it has a Price to Earnings Growth (PEG) ratio of 0.75. This tells us that the company is largely undervalued in terms of growth expectations -- but remember, these growth expectations could turn out to be wrong!

To understand the company's long term profitability and market position, we can analyze its operating margins, which are the ratio of its net profits to its revenues. Over the last four years, Host Hotels & Resorts's operating margins have averaged -8.1% and displayed a mean growth rate of -130.1%. These numbers show that the company may not be on the best track.

When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Host Hotels & Resorts was $292,000,000.00 as of its last annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, HST is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 22.2% and has on average been $633,750,000.00.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Host hotels & resorts's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.9, but is still below the average P/B ratio of the Real Estate sector, which stood at 2.39 as of the third quarter of 2022.

Host Hotels & Resorts is likely undervalued at today's prices because it has a very low P/E ratio, a lower P/B ratio than the sector average, and an irregular stream of positive cash flows with an upwards trend. The stock has mixed growth indicators because of its negative operating margins with high variability and a positive growth rate, and a PEG ratio of less than 1. We hope this preliminary analysis will encourage you to do your own research into HST's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.