A month has gone by since the last earnings report for Host Hotels (HST Quick QuoteHST - Free Report) . Shares have added about 26.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Host Hotels due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Host Hotels Misses Q1 FFO Estimates, Issues Update

Host Hotels reported first-quarter 2020 adjusted FFO per share of 23 cents, missing the Zacks Consensus Estimate of 27 cents. The reported figure also plummeted 52.1% from the year-ago tally of 48 cents.

The company generated total revenues of $1.05 billion, surpassing the Zacks Consensus Estimate by 0.2%. The top line, however, declined 24.3% year over year.

Results reflect adverse impact of the coronavirus pandemic which has significantly hurt lodging demand, as governments started imposing travel restrictions and mandatory stay-at-home orders to curb the spread in the March-end quarter.

Behind the Headlines

During the first quarter, all owned hotel RevPAR (on a constant-dollar basis) fell 23.3% year on year to $147.31. First-quarter EBITDA slumped 59.6% year over year to $164 million.

During the quarter, transient room nights slipped 20% resulting in a revenue fall of 22%, underscoring the choppy business environment. Group room nights declined 25%, with a 25% decrease in revenues, for the quarter compared with the prior year. Notably, the company’s transient business, group business and contract business had accounted for roughly 61%, 35%, and 4%, respectively, of its 2019 room sales.

Balance Sheet Position

Host Hotels exited the first quarter with cash balance of $2.8 billion and FF&E escrow reserves of $165 million. As of the same date, its debt balance amounted to $5.3 billion. While the company has no significant maturities until 2023, its monthly interest expense is roughly $13 million.

Further, following the first-quarter dividend payment in April and other payments, the company has an adjusted cash balance of $2.5 billion.

Host Hotels repurchased 8.9 million shares at an average price of $16.49 per share, aggregating $147 million earlier in the quarter. The company has, however, suspended repurchases and anticipates the hold-up to remain in effect for the remaining of the year. Moreover, the company anticipates temporarily suspending or paying a nominal dividend until further notice.

Notably, Host Hotels’ debt is rated investment grade by its three rating providers — the S&P, Moody’s and Fitch. Nevertheless, on Mar 25, Moody’s lowered the company’s outlook from Stable to Negative but retained its Baa2 credit rating. On Mar 20, the S&P lowered Host Hotels’ outlook from Stable to CreditWatch Negative but retained its BBB- credit rating. Apart from this, on Apr 3, Fitch too downgraded the company’s credit rating from BBB to BBB-, while maintaining its stable outlook.

Capital Expenditures

During the January-March period, the company invested around $131 million in capital expenditures. Of this, $76 million were ROI capital projects spend, and $55 million were renewal and replacement project expenditures.

Remarkably, for 2020, the company has now guided capital-expenditures spending of $450-$525 million, marking a $100-$125 million reduction from its prior range.

Key capital projects in those assets and markets that are expected to recover faster have been prioritized, like leisure and drive-to destinations, as well as the previously-announced major return on investment projects.

Business Update

The company noted that 1.5 million net group room nights for the year have been cancelled as of May 4, resulting in an estimated $630 million in total cancelled group revenues. Of this roughly 62% is room revenues. Additionally, about 90% of the group room revenues lost was for the first half of the year.

The company had average occupancy of 29% in March and estimates April occupancy of around 12% amid mandatory quarantines in many states. There has been rebooking of almost 12% of current-year group revenues, which had been canceled as of May 4. Majority have been rescheduled for the second half of the year.

Moreover, Host Hotels anticipates to reduce corporate expenses by 10-15% compared with initial February forecast. This would be done through reduced travel, compensation and other overheads.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -428.38% due to these changes.

VGM Scores

At this time, Host Hotels has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Host Hotels has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.