Host Hotels & Resorts Inc. (HST), the largest lodging real estate investment trust (REIT) in the U.S., reported second quarter fiscal 2010 FFO (funds from operations) of 23 cents per share that marginally exceeded the Zacks Consensus Estimate by a penny. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
We cover below the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.
Earnings Report Review
During the second quarter fiscal 2010, total revenue increased 6% to $1.1 billion compared with the year-earlier quarter. Comparable hotel revenue per available room (RevPAR) increased 8.1% during the quarter, driven by a rise in occupancy, partially offset by a fall in average daily rates. The increase in RevPAR was primarily due to an 8.1% increase in transient demand along with a 2.8% improvement in average room rate, the first such growth rate witnessed since the second quarter 2008.
(Read our full coverage on this earnings report: Host Hotels Marginally Beats)
Earnings Estimate Revisions- Overview
Fiscal earnings estimates have moved up for Host Hotels since the earnings release, meaning that analysts were optimistic about the long-term performance of the company. Let’s dig into the earnings estimate details.
Agreement of Estimate Revisions
In the last seven days, fiscal 2010 earnings estimates have been increased by 4 out of 9 analysts covering the stock, while none has decreased the same. Analysts, in general, are in consensus about the long-term outlook for Host Hotels’ earnings. For fiscal 2011, 7 out of 17 analysts covering the stock have revised their estimates upward, while none has reduced it. This indicates a positive directional movement for the fiscal year earnings. Host Hotels also anticipates that the gradual revival of the overall economy will positively affect its operating results in 2010, with comparable hotel RevPAR expected to increase in the range of 4% to 5.5% for the full year.
Magnitude of Estimate Revisions
Earnings estimates for fiscal 2010 nudged up by a penny from 66 cents to 67 cents since the earnings announcement. With positive results during the reported quarter, Host Hotels has also increased its FFO guidance for 2010 in the range of 66 cents to 70 cents per share, up from its earlier guidance of 58 cents to 65 cents. For fiscal 2011, earnings estimates have moved up 3 cents from 86 cents to 89 cents. This is an encouraging news for the company.
Moving Forward
The long-term earnings estimate picture of Host Hotels is positive. Host Hotels is the largest lodging REIT with high quality lodging assets in geographically diverse locations. Over the years, the company has executed a focused and disciplined long-term strategic plan to acquire high quality lodging assets in hard-to-replicate areas, which have the potential for significant capital appreciation.
However, the continuous acquisition spree of Host Hotels involves significant upfront operating expenses with limited near-term profitability. New hotels usually go through longer gestation to create revenues and are a drag on performance till they start generating healthy margins.
Currently, we maintain our Neutral rating on Host Hotels with a Zacks #2 Rank, which translates into a short-term ‘Buy’ recommendation and indicates that the stock is expected to out perform the overall U.S. equity market for the next 1-3 months.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/.
Read the full analyst report on “HST”
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