Huazhu Q3 Earnings: Is HTHT Expensive at 76.3x Price/EPS?

in EARNINGS/INVESTING IDEAS by

Huazhu Group recently agreed to buy Deutsche Hospitality for around $802 million. With the acquisition, Huazhu hopes to grow its presence in Asia while expanding its international footprint of upscale and luxury brands. The acquisition is step towards the company’s “global growth strategy”.

Huazhu Group (NASDAQGS:HTHT) is scheduled to report Q3 earnings results on November 12, 2019. The company is expected to report earnings of $0.27/share on revenue of $427.9 million. The consensus earnings per share (EPS) of $0.27/share is based on a poll of 2 analysts and represents a growth of 8.7% over the same quarter last year when the company reported earnings of $0.25/share.

The revenue forecast of $427.9 million based on a poll of 3 analysts implies a year-over-year (YoY) growth of 6.2%. Last year the company reported $402.9 million in revenue for the quarter.

Expected to report EPS growth of $0.02/share for Q3, 2019
Metric Expected Prior Year YoY Change
Revenue $427.87 $402.92 6.2%
EPS $0.27 $0.25 8.7%

Earnings Call Trends

Historically, management has exceeded analyst expectations 3 out of the last 8 tracked quarters, and missed expectations 5 quarters.

What are your expectations from Huazhu for this earnings this quarter? Let us know in the comments!

Analyst Expected vs Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2019 $0.26 $0.24 -6.4% Missed
Q1, 2019 $0.15 $0.11 -26.2% Missed
Q4, 2018 $0.13 $0.18 42.6% Beat
Q3, 2018 $0.28 $0.25 -11.9% Missed
Q2, 2018 $0.26 $0.28 8.1% Beat
Q1, 2018 $0.16 $0.15 -1.5% Missed
Q4, 2017 $0.17 $0.13 -23.1% Missed
Q3, 2017 $0.22 $0.25 15.3% Beat

In the following table, we summarize the company’s stock price movements after earnings releases.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
2019-08-21 $33 $32.40 -1.8% Decline
2019-05-22 $34.88 $31.88 -8.6% Decline
2019-03-14 $35.38 $39.04 10.3% Increase
2018-11-15 $27.92 $29.70 6.4% Increase

The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending June 30, 2019, the stock price reacted by falling by -1.8%.

Fundamentals And Technical Analysis

Huazhu is currently trading at $37.25/share, down -0.5% for the day. The company is trading at approximately 82% of its 52-week high of $45.39/share. The company’s stock price is up 13.4% since the last earnings report and down -2.4% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 54.69 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.

The current share price implies a price-to-earnings (P/E) multiple of 76.3x and a forward P/E multiple of 44.2x. Huazhu’s current share price also implies a rich price-to-book (P/B) multiple of 10.5x. The following table summarizes some other key fundamental ratios:

Data as of November 11, 2019
Metric Value
Last Fiscal Period FY2019.Q2
Period End Date June 30, 2019
Stock Price (Current) $37.43
P/E Ratio 76.3x
P/E Ratio (Fwd) 44.2x
PEG Ratio 1.3
Total Debt to Capital (%) 29.3%
Levered Free Cash Flow zero
Enterprise Value / EBITDA 32.2x

Company Profile: Huazhu Group Limited

Huazhu Group Limited is a large-cap stock with a market capitalization of $10.626 billion and a total enterprise value of $14.602 billion. The company operates in the Consumer Discretionary sector and Hotels, Restaurants & Leisure industry.

Huazhu Group Limited develops leased and owned, manachised, and franchised hotels primarily in the People’s Republic of China. It operates hotels under its own brands, such as Hi Inn, HanTing Hotel, Elan Hotel, Orange Hotel, HanTing Premium, Starway Hotel, JI Hotel, Orange Hotel Select, Manxin Hotel, Crystal Orange Hotel, Joya Hotel, and Blossom Hill Hotels & Resorts. The company also operates hotels under brand franchise agreements that include Ibis, Ibis Styles, Mercure, Novotel, and Grand Mercure. As of March 31, 2019, it had 4,396 hotels with 439,614 rooms.

The company was formerly known as China Lodging Group, Limited and changed its name to Huazhu Group Limited in June 2018. Huazhu Group Limited was founded in 2005 and is headquartered in Shanghai, the People’s Republic of China.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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