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Why This is the Best Time to Buy Host Hotels (HST) Stock

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Host Hotels & Resorts, Inc. (HST - Free Report) is likely to gain from its solid portfolio of upscale hotels across markets with potential. Furthermore, the company’s strategic capital-recycling program and a healthy balance sheet bode well for its long-term growth. Moreover, Host Hotels is anticipated to improve the revenues per available room backed by its value-enhancement initiatives.

Nonetheless, elevated supply in the company’s key markets is expected to reduce its pricing power. Further, geographical concentration of assets in upscale markets exposes it to the economic doldrums prevailing in the region.

Earlier this month, the company reported first-quarter 2018 adjusted funds from operations (FFO) of 43 cents per share, outpacing the Zacks Consensus Estimate of 41 cents. Results reflect margin improvement through better productivity.

Also, Host Hotels has raised its outlook for full-year 2018. The company now expects 2018 adjusted FFO per share in the range of $1.67-$1.73, denoting 5 cents increase at the midpoint from the earlier guidance of $1.60-$1.70.

Notably, Host Hotels undertakes a strategic capital-recycling program to improve its portfolio quality and strengthen its position over vibrant global markets. Furthermore, the company has been monetizing a considerable part of real estate in Washington D.C. and lowering its exposure in New York.

During first-quarter 2018, Host Hotels completed the acquisition of 301-room Andaz Maui at Wailea Resort, 668-room Grand Hyatt San Francisco and 454-room Hyatt Regency Coconut Point Resort and Spa for $1 billion. Moreover, during the reported quarter, the company’s capital expenditures were around $115 million — $29 million was allocated to return on investment (ROI) capital projects and $86 million for the renewal and replacement projects.

The company continues to expect capital expenditures of $475-$550 million for 2018. This comprises $185-$220 million in ROI projects and $290-$330 million in the renewal and replacement projects. Such investments are likely to help the company improve its portfolio quality and bolster revenues.

Further, Host Hotels has a decent balance sheet and ample liquidity. The company exited first-quarter 2018 with around $323 million of unrestricted cash and $511 million of available capacity remaining under the revolver part of its credit facility. Notably, the company has no debt maturities until 2020. This provides it ample scope for deploying capital for long-term growth opportunities while carrying out redevelopment initiatives.

Though supply growth has been tepid in the past, it has gathered momentum in recent times. In fact, supply growth is expected to remain elevated in 2018 as well as 2019, particularly in markets where the company has exposure.

As the majority of Host Hotels’ properties are concentrated in the luxury and upper-upscale segments, during any economic downturn, these segments bear the brunt as unfavorable macroeconomic conditions compel customers to reduce discretionary spending and choose lower-priced brands over the company’s premium ones. Also, the hotel industry is cyclical in nature and heavily dependent on the overall health of economies in which it operates.

Though an economic slowdown has an immediate impact on the company’s revenues, many of the expense categories associated with owning and operating hotels, such as debt-service payments, property taxes, insurance, utilities, and employee wages and benefits, remain relatively inflexible.

In the past three months, shares of Host Hotels have outperformed the industry it belongs to. This Zacks Rank #2 (Buy) company’s shares have ascended 18.4% while the industry recorded growth of 7.8% during this time frame.

Additionally, the stock has seen the Zacks Consensus Estimate for 2018 FFO per share being revised 3.6% upward in a month’s time. Given the progress on the fundamentals, the stock is likely to perform well in the upcoming period.

Other Stocks Worth a Look

Some other top-ranked stocks from the same space are Arbor Realty Trust (ABR - Free Report) , Chatham Lodging Trust (CLDT - Free Report) and Prologis, Inc. (PLD - Free Report) . All three stocks carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arbor Realty Trust’s Zacks Consensus Estimate for 2018 FFO per share has risen 14.4% to $1.03 in a month’s time. Its shares have returned 26.9% over the past year.

Chatham Lodging’s FFO per share estimates for the current year have inched up 1% to $1.93 in the past month. Its shares have gained 14.5% in a year’s time.

Prologis FFO per share estimates for 2018 have inched up 0.7% to $2.98 over the past month. Its shares have gained 18.8% over the past year.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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