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Extended Stay America Rides on Unit Growth Amid Competition

Zacks Equity Research

Extended Stay America, Inc. STAY is poised to grow on strategic initiatives to drive revenue per available room (RevPAR). The company’s focus on reducing costs and increasing unit growth are encouraging. It also has a solid earnings surprise history with the bottom line surpassing the Zacks Consensus Estimate in 10 of the preceding 12 quarters.

However, lack of exposure in international markets amid stiff competition is concerning. Although the stock has outperformed its industry’s decline of 25.5%, it has lost 9.9% in a year's time.

Let’s delve deeper into the factors that are likely to drive growth.

Catalysts Driving Growth

Extended Stay America’s strategy to focus on core customers instead of fleeting customers is encouraging. Additionally, its initiatives toward controlling costs and decreasing capital requirement for fresh hotel builds are favorable.

The company continues to boost unit growth. By 2021, it expects to have 700 Extended Stay America branded properties, out of which nearly 70% will be owned or operated and 30 percent franchised. In fact, in September, it closed the deal to sell 32 hotels for $125 million, reaching the total number of franchised or managed hotels to 59 at the end of the third quarter of 2018. Meanwhile, during the third quarter, the company’s total pipeline grew by more than 50%.

Notably, the company is trying to drive ReVPAR by providing suitable services to value-conscious business travelers. In the third quarter, comparable system-wide RevPAR increased 1.9% on a year-over-year basis on a 0.5% improvement in ADR and 110-bp rise in occupancy to 80.1%. Also, total company-owned RevPAR improved 2.7% and comparable company-owned RevPAR rose 2% to $57.15 in the quarter under review. For 2018, it anticipates comparable system-wide RevPAR growth of 1.75-2.25%.

Apart from this, the company consistently expands its share repurchase authorization to enhance shareholder value. In the first nine months of 2018, the company has repurchased 4 million shares for an aggregate price of $79.7 million.


Intense competition and lack of exposure in international markets are major deterrents for growth.

The company is continuously facing stiff competition from both large hotel chains like Marriott MAR, Hyatt H and Hilton HLT, as well as smaller independent local hospitality providers. Moreover, large companies that offer online travel services like Alibaba, allow travelers to book stays on websites such as Airbnb and HomeAway. Hence, they provide an alternative to hotel rooms, thereby posing a threat to the company’s future profitability. Amid such stiff competition, the company’s lack of exposure in international markets might limit its revenue growth potential.

Extended Stay America carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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