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Host Hotels (HST) to Report Q4 Earnings: What's in Store?

Zacks Equity Research

Host Hotels & Resorts, Inc. HST is slated to report fourth-quarter 2018 results after the market closes on Feb 19. The company’s results are anticipated to reflect year-over-year increase in revenues, while funds from operations (FFO) per share might witness a decline.

In the last reported quarter, this Bethesda, MD-based lodging real estate investment trust (REIT) delivered a positive surprise of around 5.71%, with respect to FFO per share. Results reflect improvements in food and beverage sales, as well as operations of the three hotel Hyatt portfolio acquired in 2018. These were partly muted by the disposition of eight hotels in 2017 and 2018. The company also experienced broad productivity gains that aided profitability.

The company has a decent surprise history. In fact, it posted positive surprises in each of the trailing four quarters, with an average beat of 6.04%.

This is depicted in the graph below:

Host Hotels & Resorts, Inc. Price and EPS Surprise

Host Hotels & Resorts, Inc. Price and EPS Surprise | Host Hotels & Resorts, Inc. Quote

For full-year 2018, Host Hotels expects adjusted FFO per share of $1.74-$1.76. The Zacks Consensus Estimate for the same is currently pegged at $1.75.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Host Hotels has a solid portfolio of upscale hotels across potential markets. An improving economy, better job market and high consumer confidence are likely to drive business travel and leisure trips, and thereby, steer the demand for the company’s properties.

In fact, group booking pace was strong and group revenues are projected to have reported a healthy increase in the fourth quarter, while occupancy levels are expected to have remained high. Also, a pickup in business transient travel is encouraging and raises hopes for healthy market fundamentals.

Per a report from CBRE, hotel demand registered 2.5% growth nationally in the quarter compared with 1.6% in the prior quarter, while supply growth remained at 2%. This solid demand growth boosted national occupancy, which went up 0.4% year over year, as against the decline witnessed in the third quarter. Average Daily Rate (ADR) moved up 2% nationally in the to-be-reported quarter, while RevPAR was up 2.4% year over year.

Further, the company focuses on strategic capital-recycling program. In addition, the company’s productivity-boosting efforts are encouraging and Host Hotels’ Dec-end quarter performance is expected to display improvement in productivity at many of its hotels.

Amid these, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $1.37 billion, indicating an expected year-over-year increase of 1.8%.

However, though supply growth has been tepid in the past, it has gathered momentum in recent times. In fact, supply growth is expected to have remained elevated in 2018, particularly in markets where the company has exposure. This is expected to impact the company’s pricing power.

Moreover, Host Hotels is making efforts to enhance its portfolio quality through strategic dispositions, aiming at lowering the company’s international and New York exposure. During the Oct-Dec quarter, the company announced closing the sale of its 33% stake in the European joint venture to its partners. While the proceeds offer the company the flexibility to add properties to its portfolio, invest in existing assets, repay debt or make share repurchases, the company cannot bypass the near-term dilutive impact from asset dispositions. In fact, Host Hotels’ third-quarter performance was affected by the disposition of eight hotels in 2017 and 2018.

Additionally, there was lack of any solid catalyst and therefore, in a month’s time, the Zacks Consensus Estimate of FFO per share for the quarter remained unrevised at 41 cents. Moreover, the figure denotes an estimated year-over-year decline of 2.4%.

Here is what our quantitative model predicts:

Host Hotels does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Host Hotels is 0.00%.

Zacks Rank: Host Hotels has a Zacks Rank of 3 (Hold), which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Hersha Hospitality Trust HT, scheduled to release earnings on Feb 25, has an Earnings ESP of +3.81% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Americold Realty Trust COLD, slated to release fourth-quarter results on Feb 21, has an Earnings ESP of +12.94% and a Zacks Rank of 3.

American Tower Corporation AMT, set to release earnings on Feb 27, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3.

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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