Host Hotels & Resorts Inc Valuation – February 2019 $HST

Company Profile (excerpt from Reuters): Host Hotels & Resorts, Inc. (Host Inc.), incorporated on September 28, 1998, operates as a self-managed and self-administered real estate investment trust (REIT). The Company operates through hotel ownership segment. The Company owned properties and conducted operations through Host Hotels & Resorts, L.P. (Host L.P.), of which Host Inc. was the general partner and of which it held approximately 99% of the partnership interests (OP units), as of December 31, 2016. As of February 20, 2017, its lodging portfolio consisted of 96 primarily luxury and upper-upscale hotels containing approximately 53,500 rooms, with the majority located in the United States, and with seven of the properties located outside of the United States in Australia, Brazil, Canada and Mexico. In addition, it owns non-controlling interests in two international joint ventures: approximately a 33% interest in a joint venture in Europe, which owns 10 luxury and upper-upscale hotels with approximately 3,900 rooms in Belgium, France, Germany, Spain, Sweden, the Netherlands and the United Kingdom, and a 9% indirect interest, through joint ventures, in five operating hotels and two hotels in the final stages of completion in India.


Downloadable PDF version of this valuation:

ModernGraham Valuation of HST – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,386,799,159 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 7.13 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -494.12% Fail
6. Moderate PEmg Ratio PEmg < 20 20.75 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.81 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 7.13 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.51 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $0.87
MG Growth Estimate 15.00%
MG Value $33.47
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $12.61
MG Value based on 0% Growth $7.39
Market Implied Growth Rate 6.13%
Current Price $18.04
% of Intrinsic Value 53.90%

Host Hotels and Resorts Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.43 in 2014 to an estimated $0.87 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.13% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Host Hotels and Resorts Inc revealed the company was trading above its Graham Number of $13.82. The company pays a dividend of $0.8 per share, for a yield of 4.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.75, which was below the industry average of 81.61, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.88.

Host Hotels and Resorts Inc performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.88
Graham Number $13.82
PEmg 20.75
Current Ratio 7.13
PB Ratio 1.81
Current Dividend $0.80
Dividend Yield 4.43%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $1,889,000,000
Total Current Liabilities $265,000,000
Long-Term Debt $4,079,000,000
Total Assets $12,155,000,000
Intangible Assets $0
Total Liabilities $4,760,000,000
Shares Outstanding (Diluted Average) 740,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.90
Dec2017 $0.76
Dec2016 $1.02
Dec2015 $0.74
Dec2014 $0.96
Dec2013 $0.42
Dec2012 $0.08
Dec2011 -$0.02
Dec2010 -$0.21
Dec2009 -$0.45
Dec2008 $0.72
Dec2007 $1.30
Dec2006 $1.45
Dec2005 $0.37
Dec2004 -$0.12
Dec2003 -$0.07
Dec2002 -$0.19
Dec2001 $0.08
Dec2000 $0.62
Dec1999 $0.90
Dec1998 $0.22

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.87
Dec2017 $0.83
Dec2016 $0.79
Dec2015 $0.60
Dec2014 $0.43
Dec2013 $0.10
Dec2012 -$0.03
Dec2011 $0.03
Dec2010 $0.22
Dec2009 $0.52
Dec2008 $0.92
Dec2007 $0.87
Dec2006 $0.54
Dec2005 $0.06
Dec2004 -$0.04
Dec2003 $0.09
Dec2002 $0.22

Recommended Reading:

Other ModernGraham posts about the company

Host Hotels & Resorts Inc Valuation – April 2018 $HST
Host Hotels and Resorts Inc Valuation – July 2016 $HST
23 Companies in the Spotlight This Week – 3/9/15
Host Hotels and Resorts Inc. Annual Valuation – 2015 $HST
16 Companies in the Spotlight This Week – 3/8/14

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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