Extended Stay America (STAY) Up 14.8% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Extended Stay America (STAY). Shares have added about 14.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Extended Stay America due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Extended Stay Q1 Earnings Beat Estimates, Decline Y/Y

Extended Stay reported first-quarter 2020 results, wherein earnings and revenues beat the Zacks Consensus Estimate. However, both the top and the bottom lines declined on a year-over-year basis, thanks to a drop in comparable company-owned RevPAR owing to the coronavirus outbreak.

During the first quarter, adjusted earnings of 7 cents per share beat the Zacks Consensus Estimate of 4 cents by 75%. However, the bottom line declined 56.3% on a year-over-year basis. The downside can primarily be attributed to a decline in comparable system-wide RevPAR, rise in hotel operating and interest expenses, partially offset by lower income tax expenses.

Detailed Revenue Discussion

Extended Stay reported total revenues of $266.3 million in the quarter, down 4.1% from the year-ago figure of $277.7 million. The decline was primarily due the negative impact of COVID-19 on its business, mainly in the month of March.

Comparable system-wide RevPAR of $43.98 fell 5.8% on a year-over-year basis owing to a 6.5% drop in average daily rate (ADR), offset by an increase of 60 basis points (bps) in occupancy.

Meanwhile, comparable company-owned RevPAR declined 6.4% to $45.12 from the prior-year quarter.

Operating Highlights

In the quarter under review, Extended Stay’s hotel operating margin came in at 45.7%, reflecting a decline of 440 bps from the prior-year quarter. The decline was primarily led by a decrease in comparable system-wide RevPAR as well as an increase in hotel payroll expenses.

Adjusted EBITDA totaled $97.7 million, down 16% from the comparable year-ago period due to a decline in comparable system-wide RevPAR as well as an increase in hotel labor expenses.

Balance Sheet

Cash and cash equivalents as of Mar 31, 2020, was $710.1 million compared with $346.8 million on Dec 31, 2019. At the end of the first quarter, total debt (net of unamortized deferred financing costs and debt discounts) amounted to $3,039.8 million, up from $2,639.8 million at 2019-end.

Extended Stay’s capital expenditures in the quarter under review came in at $54.6 million. The company repurchased 2.2 million Paired Shares during the reported quarter for an aggregate purchase of $31 million. At the end of the first quarter, total shares remaining under its share repurchase authorization were approximately $101.1 million. The company doesn’t plan to repurchase any additional Paired Shares in the foreseeable future.

2020 Outlook

Due to the coronavirus pandemic, the company has not provided any update on 2020 guidance. For 2020, the company expects depreciation and amortization in the range of $190 to $195 million, net interest expenses between $135 million and $145 million, and capital expenditures between $160 million and $190 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted -164.29% due to these changes.

VGM Scores

At this time, Extended Stay America has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward 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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