The average target price of DRH is 9.7 and suggests 28% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 12.0. This translates into 58% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 7.0. This is equivalent to 8% downside potential in the worst case. 

DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of a leading portfolio of geographically diversified hotels concentrated in top gateway markets and destination resort locations. The Company owns 31 premium quality hotels with over 10,000 rooms. The Company has strategically positioned its hotels to be operated both under leading global brand families as well as unique boutique hotels in the lifestyle segment.

DiamondRock Hospitality Company

Real Estate

The company pays dividends most of the time. It has paid dividends in almost every one of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are somewhat mixed. In the past 12 months, the dividend yield has been strong and significantly above its peers. The company distributes nearly all its profit as dividends (payout ratio above 90%, a negative factor). It will not be easy to sustain such an extreme payout ratio. It may also indicate a company's lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends twice a year. 

DRH reported revenue of USD 1 128mn in the last 12 months, down 0% from FY24. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 6% from FY24 to USD 0.19. Market expects EPS to reach USD 0.33 in FY25.

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 13ppts over six months and grown 2ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

The company has reported average EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 20.5% in the last 12 months, a decline from 24.4% in FY23. 

Historically, DRH has reported weak net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 4.4%, down from 7.8% in FY23. 

DiamondRock Hospitality Company reported a return on equity (RoE) of 3.1% in the last 12 months, down from 5.2% in FY23. The market consensus projects an RoE of 4.3% in FY24, again behind its peers. 

Another important profitability metric, return on assets (RoA), amounted to 1.5% in the last 12 months, a decrease from 2.6% in FY23. The market analysts predict that RoA will be 2.2% in FY24, again weaker than its peers. 

In the last 12 months, the return on capital employed (RoCE) declined to 1.6%, below the peers. The consensus estimate for FY24 for RoCE is 4.3%, again behind the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.2 in the past several years. This ratio implies a weak shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

DRH boasts very high trading liquidity. The average private investor can sell his common position in the stock almost immediately. Liquidity is usually very stable and remains extremely favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. 

No other major risks have been identified.

The risk of default is moderate. We note resilient historical revenue growth and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to negligible return on capital.

In highly turbulent market conditions, DRH is moderately volatile. In other words, the stock will fall more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be moderate. 

In normal market circumstances, DRH is moderately volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move slightly wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from limited to average. 

From both historical and forecast perspectives, the stock is fairly priced compared to similar stocks. Specifically, the stock is fairly valued on P/E, neutral on EV/EBITDA, reasonably priced on P/FCF. 

DiamondRock Hospitality Company

$ 7.58

4

DiamondRock Hospitality Company

$ 7.58

4

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

$ 7.58

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