When it comes to the earnings of higher-yielding hotel REITs, I always find it necessary to determine what needs to occur in order for that company to meet and/or exceed analysts' expectations. With that said, I wanted to take a closer look and share my thoughts on what needs to happen in order for Diamondrock Hospitality (NYSE:DRH) to deliver a fairly solid quarter when the company announces its results on August 8.
Headquartered in Bethesda, Maryland, DiamondRock Hospitality Company, a lodging focused real estate company, owns premium hotels and resorts in North America. The company operates its hotels under the Hilton, Marriott, and Westin brand names in New York, Los Angeles, Chicago, Boston, and Atlanta; and in destination resort locations, such as the United States Virgin Islands and Colorado.
Recent Trend Behavior
On Tuesday, shares of DRH, which currently possess a market cap of $2.42 billion, a forward P/E ratio of 25.77, and a dividend yield of 3.31% ($0.41), settled at a price of $12.37/share.
Based on a closing price of $12.37/share, shares of DRH are trading 3.24% below their 20-day simple moving average,2.13% below their 50-day simple moving average, and 4.34% above their 200-day simple moving average.
Although these numbers indicate a short-term downtrend and a long-term uptrend for the stock, (which generally translates into a slight selling mode for most near-term traders and a buying mode for long-term investors) I strongly believe the company's trend behavior will begin to improve as soon as it announces its Q2 results on Friday, August 8.
Upcoming Earnings Outlook
When it comes to the company's upcoming Q2 earnings, there are a number of things potential investors should consider. For instance, analysts currently calling for DRH to earn $0.25/share in terms of FFO (which is $0.10/share higher than what the company had reported during Q1, and $0.03/share higher than what the company had reported during the year-ago period) and $231.99 million in terms of revenue when its latest earnings are released on August 7.
In order to meet and/or exceed estimates DiamondRock Hospitality will need to continue to demonstrate increases in both its Pro Forma RevPAR (which grew 8.4% during the previous quarter) and its Adjusted EBITDA (which came in at $37.3 million during the previous quarter).
I strongly believe that if the company can continue to enhance its Pro Forma RevPAR as well as its Adjusted EBITDA, there's a very good chance second quarter results could exceed analysts' expectations.
Q2 Balance Sheet Expectations
When the company reported its Q1 results on May 12, it had $111.5 million of unrestricted cash on hand and approximately $1.1 billion of total debt (which consists solely of property-specific mortgage debt).
If the company can continue to demonstrate a solid increase in its unrestricted cash position while only taking on property-specific mortgage debt, there's a very good chance investors could continue to see a solid balance sheet for years to come.
From an expectation standpoint, I'd like to see the company's unrestricted cash position grow by at least 2% (or at least $2.23 million) during the second quarter.
For those of you who may be looking to establish a position in Diamondrock Hospitality I'd begin by keeping an eye on the company's upcoming earnings announcement and seeing how well both its Pro Forma RevPAR and Adjusted EBITDA have improved.
If the company can demonstrate solid improvements in each of the above mentioned areas, as well as its unrestricted cash balance then there's a very good chance that both its trend behavior and long-term growth could also improve.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.