Park Hotels & Resorts Inc. (PK) in Tysons, Va., is the second largest publicly listed lodging REIT, with a diversified portfolio of market-leading hotels and resorts and substantial underlying real estate assets. PK's portfolio currently includes 60 premium-branded hotels and resorts totaling more than 33,000 rooms, the majority of which are located in city center and resort areas.
PK reinstated its dividend after the hotel and resort real estate investment trust reported a "broad-based recovery" in demand in February. The company announced that a quarterly dividend of one cent per share would be paid on April 15 to shareholders of record on March 31. The REIT reported that pro forma revenue per available room (RevPAR) in February was $118.07, up 204.3% from the previous year and 44.3% higher than January 2022, while the $223.63 average daily rate was up 45.7% from the prior year and 9.2% higher than the January ADR. However, the stock is down 18% in price over the past year and 12.3% year-to-date to close yesterday's trading session at $16.56.
While the company has taken measures to improve its liquidity and address the COVID-19 headwinds, hotel REITs like Park are vulnerable in difficult economic times. Although economies worldwide are reopening, the process is anticipated to be gradual. Travel and hotel stays will most likely require significant time to return to anything resembling normalcy.
Here is what could shape PK's performance in the near term:
Improving Financials
PK's total revenue increased 190.3% year-over-year to $479 million for the first quarter, ended March 31, 2022. Its operating income came in at $1 million, compared to a $123 million operating loss in the prior-year quarter. The company's net loss narrowed 70% from its year-ago value to $57 million. And its loss per share amounted to $0.24 compared to an $0.81 loss per share in the first quarter of 2021.
Poor Profitability
PK's 22.3% trailing-12-months gross profit margin is 67.1% lower than the 67.7% industry average. Its trailing-12-months cash from operations stood at negative $22 million compared to the $206.78 million industry average. Also, its trailing-12-months ROA, net income margin and ROC are negative 3.4%, 18.5%, and 0.29%, respectively.
Mixed Growth Prospects
The Street expects PK's revenues and EPS to rise 78% and 111.3%, respectively, year-over-year to $2.42 billion and $0.22 in fiscal 2022. However, PK's EPS is expected to decline at a 24.2% CAGR over the next five years. Furthermore, the company failed to top the Street’s EPS estimates in two of the trailing four quarters.
POWR Ratings Reflect Uncertainty
PK has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PK has a D grade for Stability and Quality. Its 1.93 stock beta is in sync with the Stability grade. In addition, the company's poor profitability is consistent with the Quality grade.
Among the 18 stocks in the F-rated REITs – Hotels industry, PK is ranked #11.
Beyond what I have stated above, one can view PK ratings for Growth, Value, Momentum, and Sentiment here.
Bottom Line
While increased demand for travel and leisure should bode well for the company, several macroeconomic headwinds, particularly surging inflation, could mar its growth in the near term. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $18.81 and $18.80, respectively, indicating bearish sentiment. So, we think investors should wait before scooping up its shares.
How Does Park Hotel & Resorts Inc. (PK) Stack Up Against its Peers?
While PK has an overall C rating, one might want to consider its industry peer, Megaworld Corporation (MGAWY), which has an overall A (Strong Buy) rating.
PK shares were trading at $16.40 per share on Tuesday morning, down $0.16 (-0.97%). Year-to-date, PK has declined -13.09%, versus a -17.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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