Unveiling Host Hotels & Resorts (HST)'s Value: Is It Really Priced Right? A Comprehensive Guide
With a daily loss of -1.36 % and a 3-month loss of -3.01 %, Host Hotels & Resorts Inc (NASDAQ:HST) has an Earnings Per Share (EPS) of 1.05. The question of interest is, is the stock significantly undervalued? This article provides a detailed valuation analysis of the company. Keep reading to learn more.
Company Introduction
Host Hotels & Resorts Inc (NASDAQ:HST) owns 78 predominantly urban and resort upper-upscale and luxury hotel properties, which represents over 42,000 rooms, mainly in the United States. The company recently sold off its interests in a joint venture owning a portfolio of hotels throughout Europe and other joint ventures that owned properties in Asia and the United States. The majority of Host's portfolio operates under the Marriott and Starwood brands.
The company's stock price is $15.92, with a market cap of $11.30 billion. However, the GF Value, an estimation of fair value, is $27.55. This discrepancy paves the way for a more profound exploration of the company's value.
Summarizing GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, derived from historical trading multiples, an adjustment factor based on the company's past performance and growth, and future business performance estimates.
Host Hotels & Resorts (NASDAQ:HST) appears to be significantly undervalued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Because Host Hotels & Resorts is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. Host Hotels & Resorts has a cash-to-debt ratio of 0.17, which ranks better than 74.44% of 720 companies in the REITs industry. The overall financial strength of Host Hotels & Resorts is 5 out of 10, which indicates that the financial strength of Host Hotels & Resorts is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Host Hotels & Resorts has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $5.20 billion and Earnings Per Share (EPS) of $1.05. Its operating margin is 15.56%, which ranks worse than 85.31% of 667 companies in the REITs industry. Overall, the profitability of Host Hotels & Resorts is ranked 6 out of 10, which indicates fair profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Host Hotels & Resorts's 3-year average revenue growth rate is worse than 67.56% of 635 companies in the REITs industry. Host Hotels & Resorts's 3-year average EBITDA growth rate is -6.6%, which ranks worse than 68.02% of 541 companies in the REITs industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Host Hotels & Resorts's ROIC was 6.8, while its WACC came in at 9.09.
Conclusion
Overall, Host Hotels & Resorts (NASDAQ:HST) stock gives every indication of being significantly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 68.02% of 541 companies in the REITs industry. To learn more about Host Hotels & Resorts stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
