A month has gone by since the last earnings report for Extended Stay America (STAY). Shares have lost about 2% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Extended Stay America due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Extended Stay America Q1 Earnings Lag, Revenues Top Estimates
Extended Stay America reported mixed first-quarter 2019 results, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same. However, both the top and bottom line declined on a year-over-year basis.
Adjusted earnings came in at 16 cents per share, missing the Zacks Consensus Estimate by a penny. The bottom line also decreased 10.5% year over year due to dismal comparable system-wide RevPAR as well as rise in comparable company-owned hotel operating expenses, which overshadowed decline in depreciation expense and net interest expense.
Detailed Revenue Discussion
Total revenues of $277.7 million in the first quarter marginally surpassed the Zacks Consensus Estimate of $273 million. However, the top line declined 6.7% on a year-over-year basis due to asset dispositions. On a comparable company-owned basis, total room and other hotel revenues decreased 1.9% in the quarter under review.
Also, comparable system-wide RevPAR decreased 1.6% on a year-over-year basis. The decline can be attributed to a 3% fall in average daily rate (ADR), which overshadowed 110 basis points increase in occupancy to 71.4%. However, total company-owned RevPAR rose 0.6%, whereas comparable company-owned RevPAR declined 2.1% to $48.23 in the first quarter.
Behind the Headlines
Extended Stay’s hotel operating margin in the quarter under review was 50.1%, reflecting a 210-bp decline from the prior-year quarter. Increase in payroll expenses and decline in comparable system-wide RevPAR led to the downturn. Net income totaled $28.4 million compared with $31.1 million in first-quarter 2018, mirroring a decline of 8.7%. This downside can be attributed to decrease in comparable system-wide RevPAR and rise in operating expenses.
Cash and cash equivalents as of Mar 31, 2019, was $288 million compared with $287.5 million at the end of Dec 31, 2018. Total shareholders’ equity at the end of the first quarter was $1,296.7 million. As of Mar 31, 2019, total debt (net of unamortized deferred financing costs and debt discounts) amounted to $2,401.6 million, down from $2,402.6 million at the end of Dec 31, 2018.
Extended Stay invested roughly $55.3 million as capital expenditures in the quarter under review. On Feb 27, the company’s board of directors announced cash distributions totaling 23 cents per share, up 4.5% from the earlier distribution of 22 cents. The cash will be payable May 30, 2019, to its shareholders of record as of May 16, 2019. The company did not repurchase any shares during the first quarter.
The company reiterated its guidance for 2019. Extended Stay continues to expect total revenues in the range of $1,230-$1,250 million. Moreover, comparable system-wide RevPAR is envisioned to be in the flat to up 2% range. Adjusted EBITDA is projected between $560 and $580 million. Capital expenditures for the year are anticipated to be in the $310-$360 million band.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Extended Stay America has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Extended Stay America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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