Will Host Hotels (HST) Q3 Earnings Disappoint Investors?

Host Hotels & Resorts, Inc. HST is set to report third-quarter 2016 results before the market opens on Nov 2.

Last quarter, this Bethesda, MD-based lodging real estate investment trust (“REIT”) came up with an in-line performance. However, over the past four trailing quarters, the company has posted surprises on three occasions, with an average beat of 6.39%. This is depicted in the chart below.

Currently, the Zacks Consensus Estimate for third-quarter funds from operations (“FFO”) per share is pegged at 36 cents.

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

Factors to Consider

Host Hotels boasts a portfolio of upscale hotels across lucrative markets in the U.S. Also, the company undertook a strategic capital-recycling program to enhance its portfolio quality and strengthen its position over global vibrant markets.

However, amid the economic uncertainty, business transient demand is expected to have remained soft, though consumer confidence and job market strength is anticipated to have kept leisure demand decent. International travel trends are likely to have remained challenged amid strong U.S. dollar.

Moreover, for macro factors, including prolonged effects of the Paris attacks and Brussels as well as Brexit-induced political and economic uncertainty, performances of the company’s hotels in hotels in Paris, London and Brussels is anticipated to have remained challenged in the third quarter.

Though supply growth has been dismal in the past, it has reached more normalized levels in recent times. Moreover, in some of the company’s major markets, like that of New York, supply growth has increased substantially. As such, fundamentals are anticipated to remain challenged as new supply is absorbed by the market. Moreover, repositioning its portfolio and disposition of assets are likely to put pressure on top-line growth.

Earnings Whispers

Our proven model does not conclusively show that Host Hotels will beat on earnings this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the percentage difference between the Most Accurate estimate of 37 cents and the Zacks Consensus Estimate of 36 cents, is 2.78%.

Zacks Rank: Host Hotels currently has a Zacks Rank #4 (Sell).

While a positive ESP is a meaningful indicator of a likely positive surprise, the sell-rated rank of the stock lowers the chances of any beat this earnings season.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Stocks to Consider

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

National Health Investors Inc. NHI has an Earnings ESP of +1.61% and a Zacks Rank #3. The company will report results on Nov 7.

PennyMac Mortgage Investment Trust PMT has an Earnings ESP of +13.16% and a Zacks Rank #2. The company is slated to release results on Nov 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Parkway, Inc. PKY has an Earnings ESP of +28.89% and a Zacks Rank #3. The company is expected to declare results on Nov 7.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. All earnings per share numbers presented in this write up represent FFO per share.

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