DiamondRock Hospitality

DiamondRock Hospitality Company (DRH - Snapshot Report) shares have been rising since its strong second quarter 2012 report, which included a 33.3% year-over-year jump in funds from operations (FFO). Moreover, with an improving hotels industry and strong upward estimate revisions, the stock is now a Zacks #1 Rank (Strong Buy). This hotel REIT (real estate investment trust) has an impressive P/B multiple of 1.07, making it a true value stock.

Strong First Quarter

On July 25, DiamondRock Hospitality reported second quarter 2012 FFO of 20 cents per share, in line with the Zacks Consensus Estimate but up from the year-ago FFO of 15 cents. Adjusted funds from operations (FFO) came in at $34.2 million, surpassing the year-ago level by 33.6%.

Total revenue jumped 23.6% year over year to $185.5 million. Adjusted EBITDA increased 17.0% year over year to $48.1 million. Pro forma RevPAR (revenue per available room) rose 5.8% to $139.98, primarily due to a 4.6% rise in the average daily rate to $177.9.

DiamondRock Hospitality paid a cash dividend of 8 cents per share in the second quarter of 2012. The current dividend payment affirms a solid yield of 3.4%.

DiamondRock has also completed transactions worth more than $750 million over the past year, including the acquisition of four hotels from Blackstone Real Estate Partners for $495 million.

Outlook Raised

Based on healthy second quarter results, management raised the adjusted EBITDA guidance to between $193 million and $201 million from the earlier range of $177 million to $186 million. The adjusted FFO per share projection has also increased to between 76 cents and 80 cents from the previous expectation of 73 cents to 77 cents.

Earnings Estimate Moving Higher

Over the last 7 days, the Zacks Consensus Estimate for 2012 increased 1.3% to 78 cents per share with six of eleven estimates revised upward. This implies a year-over-year growth of 25.2%. For 2013, the Zacks Consensus Estimate is 88 cents per share, marking an upswing of 3.5% over the last 30 days and suggesting a year-over-year rise of 13.9%.

Impressive Valuation

Apart from a low P/B ratio, DiamondRock Hospitality’s P/E ratio of 12.24 reflects significant value opportunity (A P/E ratio under 15.0 and P/B ratio below 3.0 generally indicate value). On a forward P/E and P/B basis, DiamondRock Hospitality is also trading at a discount to the industry average of 15.43x and 2.18x, respectively.

Based in Bethesda, Maryland, DiamondRock Hospitality owns, acquires, and invests in upscale hotels under the Hilton, Marriott and Westin brand across the U.S. The property portfolio of the company includes 27 hotels with over 11,900 rooms. The company currently has a market cap of $1.60 billion.