After DiamondRock Hospitality Company’s (NYSE:DRH) earnings announcement on 31 December 2018, analysts seem cautiously optimistic, as a 5.1% increase in profits is expected in the upcoming year, compared with the past 5-year average growth rate of 0.6%. Currently with trailing-twelve-month earnings of US$88m, we can expect this to reach US$92m by 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.
Exciting times ahead?
Over the next three years, it seems the consensus view of the 11 analysts covering DRH is skewed towards the negative sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. I’ve plotted out each year’s earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of DRH’s earnings growth over these next few years.
This results in an annual growth rate of -0.9% based on the most recent earnings level of US$88m to the final forecast of US$76m by 2022. However, if we exclude extraordinary items from earnings, we see that the profits is predicted to rise over time, resulting in an EPS of $0.47 in the final year of forecast compared to the current $0.43 EPS today. Fall in earnings appears to be a result of cost outpacing top line growth of 3.0% over the next few years. With this high cost growth, margins is expected to contract from 10% to 8.0% by the end of 2022.
Future outlook is only one aspect when you’re building an investment case for a stock. For DiamondRock Hospitality, I’ve compiled three fundamental factors you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is DiamondRock Hospitality worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether DiamondRock Hospitality is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of DiamondRock Hospitality? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.