Credit Suisse Cuts La Quinta, Says 'Checking Out' Until Clarity Given On Three Topics

• Shares of La Quinta Holdings Inc LQ have declined 31.73 percent in the last six months, touching a low of $15.41 on September 29.
• Joel Simkins of Credit Suisse has downgraded the rating on the company from Outperform to Neutral, while lowering the price target from $20 to $18.
• Simkins expects the stock to trade “sideways” due to lackluster RevPAR growth, uncertainties related to management and concerns regarding competitive pressures and capital reinvestments.

Analyst Joel Simkin also stated, “Given the company's overweight position towards the TX market, concerns around surrounding economies may weigh on sentiment.”

La Quinta reports its 3Q15 results with the pro forma adjusted EBITDA ahead of the consensus and the estimates, while system-wide RevPAR grew 2.1 percent year on year.

Simkins believes that investors seek clarity regarding permanent leadership at the company, although the interim CEO, Keith Cline, appears to be a strong candidate for the role of permanent CEO.

Simkins elaborated that “leadership will need a good handle on how to unlock value from owned real estate and maintain strong franchisee relationships, as the company tries to fix its RevPAR index which has slipped.”

According to the Credit Suisse report, La Quinta’s robust balance sheet and its free cash flow, along with the capacity to buyback shares, would offer downside support to the stock.

However, the lodging sector is expected to see accelerated consolidation, with the possibility of La Quinta being a “bolt on platform with immediate synergies for a strategic suitor looking to expand its presence in select-service,” the report added.