Extended Stay America's Stock Gains On Raised 2017 Guidance

Extended Stay America, Inc. (NYSE:STAY) recently provided an updated 2017 outlook, mirroring an improvement in its businesses. In the same press release, the company along with its wholly-owned REIT, ESH Hospitality, Inc. announced the appointment of Jonathan S. Halkyard as the next President and Chief Executive Officer (CEO) for both the companies.

Following the news, share price of Stay America increased 5.4% in after-hours trading on Dec 18.

Updated 2017 Outlook

The company performed better than expected in the months of November and December. The upbeat performance was primarily led by strength in disaster-relief businesses in Texas and Florida. Improved circumstances in northern and southern California also led to the updated guidance.

Total Revenues:The company expects total revenues in the range of $1,280 million to $1,284 million. The earlier projection was $1,273-$1,279 million. Notably, in the first nine months of 2017, total revenues grew 0.5% year over year to $980.2 million. The Zacks Consensus Estimate for current-year revenues is pegged at $1.28 billion, reflecting 0.5% year-over-year growth.

Comparable RevPAR: Comparable Revenue per available room (RevPAR) is expected to grow in the band of 1.6% 1.9%, higher than the previous guided range of 1% to 1.5%. We note that, driven by a 100-basis point (bps) increase in occupancy and a 0.3% uptick in Average Daily Rate (ADR), Comparable RevPAR grew 1.5% year over year to $51.16 in the first nine months of 2017.

Net Income: Extended Stay America expects net income between $158 million and $163 million, up from the previous forecast of $155-$161 million.

The company is focused on channeling its capital expenditures in a way that facilitates RevPAR growth on strong occupancy and ADR. Resultantly, net income for the company witnessed year-over-year growth of 55.3% in the first nine months of 2017 and is expected to grow further in 2017.

Expenditures: The company reaffirmed its expectation for depreciation, amortization and net interest expenses for the year. Depreciation and Amortization expenses are expected at $230 million, while net interest expense is projected at $130 million. Effective tax rate growth is expected to increase 23-24%, same as the previous guidance. Capital expenditure guidance was also reiterated at $163-$178 million.

Adjusted EBITDA: Extended Stay America expects adjusted EBITDA in the range of $614 million to $618 million, up from the previous expectation of $610-$615 million. The raised guidance reflects growth rate expectation of -0.3% to 0.4%, better than the earlier range of -0.9% to -0.1%.

We note that adjusted EBITDA increased 2% in the nine months of 2017 from the year-ago $482.7 million.

Meanwhile, the consensus estimate for current-year earnings per share is pegged at 97 cents, reflecting a year-over-year decline of 2.2%.

However, through franchising of hotels and asset sales, the company expects to gain traction in the full year and return more to shareholders.

Zacks Rank and Stocks to Consider

Stay America has a Zacks Rank #3 (Hold).

A few-better ranked hotel companies are Marriott International, Inc. (NASDAQ:MAR) , Hilton Worldwide Holdings Inc. (NYSE:HLT) and Choice Hotels International, Inc. (NYSE:CHH) , all carrying a Zacks Rank #2 (Buy). You can see Zacks Investment Research

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Written By: Zacks Investment Research