Why Is Host Hotels (HST) Up 7.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Host Hotels (HST). Shares have added about 7.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Host Hotels due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Host Hotels Q2 FFO Misses Estimates, Revenues Beat

Host Hotels reported second-quarter 2020 loss in terms of adjusted FFO per share of 26 cents, meeting the Zacks Consensus Estimate. Notably, the company reported adjusted FFO per share of 53 cents in the prior-year quarter.

It generated total revenues of $103 million, surpassing the Zacks Consensus Estimate of 102 million. The top line, however, declined 93.1% year over year.

Results reflect an adverse impact of the coronavirus pandemic, which has significantly hurt lodging demand, as travel restrictions and mandatory stay-at-home orders to curb the virus spread continued in the June-end quarter.

Behind the Headlines

During the second quarter, all owned hotel RevPAR (on a constant-dollar basis) fell 93% year over year to $14.31. Second-quarter EBITDA was negative $160 million. The company reported EBITDA of $446 million in the prior-year quarter.

Demand during the June-end quarter was primarily driven by drive-to and resort destinations. As of the second-quarter end, room revenues from the transient business were $37 million, indicating a year-over-year plunge of 92.8%. Room revenues from group and contract businesses declined 94.3% and 83.3% year over year, to $18 million and $6 million, respectively.

Moreover, room nights for its transient, group and contract business declined 90%, 90% and 74.1%, respectively, from the prior-year quarter. Notably, the company’s transient, group and contract businesses accounted for roughly 61%, 35%, and 4%, respectively, of its 2019 room sales.

Balance Sheet Position

Host Hotels exited the second quarter with a cash balance of $1.6 billion and FF&E escrow reserves of $154 million and $750 million of capacity available under its credit revolver. As of the same date, its debt balance amounted to $4.5 billion. The company has no significant maturities until 2023.

Moreover, it secured waivers for the quarterly-tested financial covenants in its credit facility, starting Jul 1, 2020, through the second quarter of 2021.

Capital Expenditure

During the January-June period, the company invested around $300 million in capital expenditure. Of this, $206 million was ROI capital projects spend, and $94 million was renewal and replacement project expenditure.

Remarkably, for 2020, the company now guided capital expenditure spending of $475-$520 million, as compared with $450-$525 million mentioned earlier.

Key capital projects in those assets and markets, which are expected to recover faster, have been prioritized like leisure and drive-to destinations as well as the previously-announced major ROI projects.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -35.88% due to these changes.

VGM Scores

At this time, Host Hotels has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Host Hotels has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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