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Extended Stay (STAY) Q3 Earnings: What's in the Cards?

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North Carolina-based hotelier Extended Stay America, Inc.STAY is set to report third-quarter 2015 results on Oct 27, before the opening bell. Last quarter, it posted a positive earnings surprise of 17.86%. In fact, the company has posted positive earnings surprises in three of the trailing four quarters with an average positive earnings surprise of 4.24%. Let's see how things are shaping up for the upcoming announcement.

Factors to Consider

Of late, Extended Stay America has been busy renovating its properties, thereby hurting occupancy rates. RevPAR in the second quarter was lower on a sequential basis owing to a decline in occupancy rate. In fact, the company had stated during the second quarter earnings call that it will continue renovating hotels in the third quarter, which will impact revenues. However, it expects revenue management and marketing initiatives to drive top-line growth. Currently, it expects RevPAR growth in the range of 5% to 7% and revenues in the range of $355 million to $362 million in the third quarter.

The transformational initiatives undertaken by Extended Stay would aid RevPAR at its properties. Meanwhile, the hotels that are already renovated are posting higher ADR levels, higher occupancy levels, higher revenue growth, and higher occupancy growth than the ones that are yet to be renovated. However, the company's lack of exposure in the growing emerging markets takes away a big share of the revenues.

We would like to remind investors that costs related to renovate the properties would continue to take a toll on profits.

Earnings Whispers?

Our proven model does not conclusively show that Extended Stay is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 31 cents.

Zacks Rank: Extended Stay has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some other companies in the broader consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Outerwall Inc. OUTR with an Earnings ESP of +8.28% and a Zacks Rank #2 (Buy).

Townsquare Media, Inc. TSQ with an Earnings ESP of +2.5% and a Zacks Rank #2.

Masonite International Corp. DOOR with an Earnings ESP of +7.14% and a Zacks Rank #3.

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EXTENDED STAY (STAY): Free Stock Analysis Report

OUTERWALL INC (OUTR): Free Stock Analysis Report

MASONITE INT CP (DOOR): Free Stock Analysis Report

TOWNSQAR MEDIA (TSQ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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