Chesapeake Lodging Trust (CHSP) has been steadily climbing since October 2011 when the industry was mired with incessant fears of a double-dip recession. With a first quarter positive FFO/share surprise of 46.2% and expected year-over-year earnings growth of 49.7% this fiscal year, Chesapeake looks like a solid growth stock.
This hotel REIT (real estate investment trust) presently has a Zacks #2 Rank (Buy).
Strong First Quarter
On May 1, 2012, Chesapeake reported strong first quarter results with a 109.6% year-over-year growth in total revenue to $50.3 million.
Adjusted FFO/share jumped 171.4% year-over-year to 19 cents, exceeding the Zacks Consensus Estimate by 6 cents. Adjusted EBITDA surged by a phenomenal 269.2% year-over-year to $9.6 million, while pro forma RevPAR (revenue per available room) increased 12.2% to $123.22, exceeding the U.S. industry-wide RevPAR growth by a broad margin of 430 basis points.
With focused asset management efforts and accretive acquisitions, Chesapeake increased its dividend payout for the first quarter by 10% to 22 cents per share, or 88 cents on an annualized basis.
Fiscal Outlook Raised
Chesapeake raised its 2012 adjusted FFO/share guidance to $1.60 - $1.69 from the earlier range of $1.55 - $1.64. Adjusted hotel EBITDA is presently expected in the range of $83.2 million - $86.7 million compared with the earlier projection of $82.3 million - $85.6 million. Pro forma RevPAR for 2012 is expected to grow in the range of 7.5% - 9.0% compared with the earlier expectation of 6.5% - 8.5%.
Surge in Earnings Estimate Revisions
Over the past 60 days, the Zacks Consensus Estimate for 2012 increased 3.1% to $1.66, while the outlook for 2013 advanced 5.2% to $2.03. The 2012 earnings estimate is on the higher end of the company's guidance range.
Chesapeake's valuation looks reasonable on a price-to-earnings (P/E) and price-to-book (P/B) basis. Shares of Chesapeake are currently trading at a forward P/E of 10.65x, a 5.2% discount to the peer group average of 11.24x. On a P/B basis, Chesapeake is currently trading at 1.11x versus 1.19x for the peer group. Shares also look pretty impressive with a ROE of 1.9%, which is better than the peer group average of 0.9%.
Chart Resonates Growth Potential
Since December 20, 2011, Chesapeake shares have consistently fared relatively better than the simple moving average for 200 days or SMA (200). The year-to-date return for the stock is noteworthy at 14.55% compared to a S&P tally of 6.92%.
Chesapeake owns luxury and upper-upscale hotels in some of the most desirable locations in the U.S. such as Boston, San Francisco, and Seattle. The company specifically focuses on owning and acquiring upscale hotels at prices well below replacement costs, with attractive return on investments and significant upside potential. Chesapeake currently owns 12 hotels with an aggregate of 3,516 rooms in 6 states in the U.S. and the District of Columbia. The company presently has a market cap of $568.97 million.
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