Today is shaping up negative for Host Hotels & Resorts, Inc. (NYSE:HST) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the latest downgrade, the 17 analysts covering Host Hotels & Resorts provided consensus estimates of US$2.9b revenue in 2020, which would reflect a substantial 47% decline on its sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of US$0.35 in 2020, a sharp decline from a profit over the last year. Previously, the analysts had been modelling revenues of US$4.0b and earnings per share (EPS) of US$0.23 in 2020. So we can see that the consensus has become notably more bearish on Host Hotels & Resorts' outlook with these numbers, making a sizeable cut to this year's revenue estimates. Furthermore, they expect the business to be loss-making this year, compared to their previous forecasts of a profit.
The consensus price target was broadly unchanged at US$13.77, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Host Hotels & Resorts, with the most bullish analyst valuing it at US$20.00 and the most bearish at US$7.00 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 47% revenue decline a notable change from historical growth of 0.7% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 4.3% next year. It's pretty clear that Host Hotels & Resorts' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest low-light for us was that the forecasts for Host Hotels & Resorts dropped from profits to a loss this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Host Hotels & Resorts after the downgrade.
As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Host Hotels & Resorts' financials, such as a weak balance sheet. For more information, you can click here to discover this and the 3 other warning signs we've identified.
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