Host Hotels & Resorts Remains A Risky Bet After Recent Surge

We believe there may be better places for your money than Host Hotels stock (NYSE: HST) at the present time after observing a surge of 30%. The stock traded at a pre-Covid high of $17 in February, slightly above the level observed now. Host Hotels & Resorts is a real estate investment trust company that owns 80 luxury and upscale hotels with a 46,500 total room portfolio. The suspension of dividends in July has been a setback for investors who were earning a 5% dividend yield by holding the stock. As hotel occupancy rates remain at multi-year lows with the development of a vaccine as the key driver for travel demand recovery and resumption of dividends. Our detailed analysis compares Host Hotels & Resorts stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• From 3/24/2020: S&P 500 recovers 51% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how HST and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

Host Hotels & Resorts vs S&P 500 Performance Over 2007-08 Financial Crisis

HST stock declined from levels of around $23 in September 2007 (pre-crisis peak) to levels of around $4 in March 2009 (as the markets bottomed out), implying HST stock lost 84% from its approximate pre-crisis peak. It recovered post the 2008 crisis to levels of about $12 in early 2010 – rising by 215% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.

Host Hotels & Resorts’ Fundamentals in Recent Years Look Stable

Host Hotels has consistently generated $5.5 billion in annual revenues in the past few years. Also, the company’s net margins have remained relatively flat resulting in a consistent $1.2 billion of annual cash generation from operations. Thus, the company has been returning $0.85 of annual dividend per share since 2017. However, the company’s performance in 2020 has been significantly impacted by the pandemic with revenues for the first nine months down by 67% – resulting in suspension of quarterly dividends to preserve cash.

Does Host Hotels Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

Host Hotel’s total debt increased from $3.7 billion since 2016 to $5.6 billion at the end of Q2 2020. As the company has no maturities until 2023, it appears to be in a good position to weather the crisis.

CONCLUSION

Phases of Covid-19 crisis:

• Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival anxiety
• May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
• July-October 2020: Poor Q2 results and lukewarm Q3 performance, but continued improvement in demand and a decline in the number of new cases and progress with vaccine development buoy market sentiment

Going by the historical performance and in view of the recent rally in Host Hotels stock, we believe that the stock has little room for growth in the near future.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams