Host Hotels & Resorts Upgraded On Improving Growth Prospects

Host Hotels and Resorts Inc HOST, an operator of 96 luxury hotels, received an upgrade despite weak demand in the business and international sectors. With strong leisure demand boosting hotels, a potential rebound in international and business growth would be a boon for the company, according to BTIG Research. Add an attractive acquisition market, and Host Hotels appears ripe for the future, according to the sell-side firm. 

The Analyst

James Sullivan of BTIG upgraded Host Hotels to a Buy with a $22 price target.

The Thesis

Host Hotels' notable upgrade from BTIG comes due to a strong balance sheet and improving variables that underpin external and internal growth, Sullivan said in a note. 

Host Hotels operates 53,000 rooms, and although industry supply is likely to peak in the coming quarters, the number of rooms in construction is declining and construction financing is becoming more difficult, Sullivan said. 

Although supply growth is expected to peak in the upcoming quarters, hotel demand growth has held steady in most markets, despite sluggish business and international demand, according to BTIG. 

Consistent leisure demand has helped overall demand growth beat industry forecasts in 2018 thus far.

Sullivan sees business demand rebounding shortly, as it is historically correlated with corporate profit trends and business investment.

“The strong trends on corporate profit results since the start of 2017 should drive a rebound in business demand- without taking into account a potential material additional boost to profits from the tax reform measures,” he said. 

Mix in worldwide economic growth and a weaker U.S. dollar, and there's more reason for international demand to pick up as well.

Although BTIG has not modeled any potential acquisitions for Host, the environment appears ripe for Host to make a purchase, with Hyatt Hotels Corporation H recently announcing its plan to sell up to $1.5 billion of owned hotels as it moves to an asset-light strategy, Sullivan said. 

Price Action

Host Hotels moved up 2 percent following the upgrade, at last check trading at 19.90.

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