Host Hotels & Resorts Inc (HST, Financial) reported a daily gain of 4.14%, with an Earnings Per Share (EPS) of $1.12. The question arises: is this stock a potential value trap? This article aims to answer this question through a detailed valuation analysis, so stay tuned.
Company Overview
Host Hotels & Resorts Inc (HST, Financial) owns 78 urban and resort upper-upscale and luxury hotel properties, totaling over 42,000 rooms, mostly in the United States. The company's portfolio operates primarily under the Marriott and Starwood brands. With a market capitalization of $13 billion and a stock price of $18.26, the company's GF Value, an estimation of fair value, stands at $27.62, suggesting a potential value trap scenario. Let's delve deeper into the company's financials and operations to better understand its value.
Understanding the GF Value
The GF Value is a proprietary measure, representing the intrinsic value of a stock. It's calculated based on historical trading multiples, a GuruFocus adjustment factor considering the company's past performance and growth, and future business performance estimates. The GF Value Line represents the stock's ideal fair trading value.
For Host Hotels & Resorts (HST, Financial), the GF Value suggests a possible value trap scenario. The stock's fair value is determined by historical multiples, an internal adjustment based on past business growth, and future performance estimates. If the stock's price is significantly above the GF Value Line, it may be overvalued, potentially leading to poor future returns. Conversely, if it's significantly below the GF Value Line, the stock might be undervalued, promising higher future returns.
Financial Strength Analysis
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before buying its stock. Host Hotels & Resorts boasts a cash-to-debt ratio of 0.12, outperforming 67.31% of companies in the REITs industry. GuruFocus ranks Host Hotels & Resorts' overall financial strength at 5 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Host Hotels & Resorts has been profitable 8 out of the past 10 years. With a revenue of $5.2 billion and Earnings Per Share (EPS) of $1.12 over the past twelve months, its operating margin stands at 17.01%. This performance ranks worse than 85.16% of companies in the REITs industry, leading to a profitability rank of 7 out of 10, indicating fair profitability.
Growth is a crucial factor in company valuation. The 3-year average annual revenue growth rate for Host Hotels & Resorts is -2.9%, ranking worse than 68.3% of REITs industry companies. Its 3-year average EBITDA growth rate is -6.6%, underperforming 69.76% of industry peers.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) offers insights into its profitability. For the past 12 months, Host Hotels & Resorts' ROIC stands at 7.2, while its WACC is 8.94, suggesting the company is creating value for shareholders.
Is Host Hotels & Resorts a Value Trap?
Despite the potential undervaluation of Host Hotels & Resorts, there are signs of risk. The Beneish M-Score for the company is -0.15, surpassing the threshold of -1.78, indicating potential earnings manipulation. Additionally, the company's 5-year revenue per share growth rate stands at -9.1%, suggesting a decline in revenue.
Conclusion
In conclusion, the stock of Host Hotels & Resorts appears to be a potential value trap. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 69.76% of companies in the REITs industry. To learn more about Host Hotels & Resorts stock, check out its 30-Year Financials here.
To find high-quality companies that may deliver above-average returns, check out GuruFocus High Quality Low Capex Screener.
