Extended Stay (STAY) Stock Up on Q4 Earnings & Revenue Beat

Extended Stay America, Inc.STAY reported better-than-expected earnings for the fifth straight quarter in fourth-quarter 2018. Following the quarterly results, shares of the company gained 3.3% in after-hours trading on Feb 27. However, in the past six months, the stock has lost 13% compared with the S&P 500's 3.6% decline.

Adjusted earnings came in at 21 cents per share, outpacing the Zacks Consensus Estimate a penny. The bottom line also grew 9.2% year over year owing to a drop in effective tax rate as well as lower depreciation and general and administrative expenses. Share repurchases also provided a boost to earnings.

Detailed Revenue Discussion

Total revenues of $289.7 million in the fourth quarter marginally surpassed the Zacks Consensus Estimate of $288 million. However, the top line declined 4.2% on a year-over-year basis due to asset dispositions, which overshadowed increase in RevPAR as well as total room and other hotel revenues. On a comparable company-owned basis, total room and other hotel revenues rose 0.9% in the quarter under review.

Comparable system-wide RevPAR increased 0.9% on a year-over-year basis. The uptick was driven by a 310 basis points (bps) improvement in occupancy, marginally overshadowed by a 3.4% decline in average daily rate (ADR). Also, total company-owned RevPAR improved 3.9% and comparable company-owned RevPAR rose 0.7% to $48.97 in the fourth quarter.

Behind the Headlines

Hotel operating margin in the quarter was 51.1%, reflecting a 190-bp decline from the prior-year quarter. Increase in payroll, reservation, marketing and maintenance expenses led to the downturn. Net income totaled $39.4 million compared with $40.2 million in the same period in 2017, marking a decline of 1.9%. The decline was due to cycling an $11.9 million gain on asset dispositions in the prior-year quarter and contraction in hotel operating margin, which overshadowed lower effective tax rate, reduction in depreciation and general and administrative expenses.

Cash and cash equivalents as of Dec 31, 2018, was $287.5 million compared with $113.3 million at the end of Dec 31, 2017. Total shareholders' equity at the end of the fourth quarter was $1,310.6 million. As of Dec 31, 2018, total debt (net of unamortized deferred financing costs and debt discounts) amounted to $2,402.6 million, down from $2,541.9 million at the end of Dec 31, 2017.

Extended Stay invested roughly $61.7 million as capital expenditures in the quarter under review. On Feb 27, the company's board of directors announced cash distributions totaling 22 cents per share, which is payable Mar 28, 2019, to its shareholders of record as of Mar 14, 2019. Additionally, the company has bought back 0.3 million shares for $5.7 million during the fourth quarter.

2019 Outlook

Extended Stay expects total revenues in the range of $1,230-$1,250 million. Moreover, comparable system-wide RevPAR is envisioned in the flat to up 2%. Adjusted EBITDA is projected between $560 and $580 million. Capital expenditures for the year are anticipated to be in the range of $310-$360 million.

Zacks Rank & Stocks to Consider

Extended Stay, which shares space with Choice Hotels International, Inc. CHH , has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same space include Belmond Ltd. BEL and Hilton Worldwide Holdings Inc. HLT , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Belmond reported better-than-expected earnings in the trailing two quarters.

Hilton Worldwide Holdings has an expected current-year earnings growth rate of 34.4%.

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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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