Extended Stay America Shares Climb After Strong Q4 Results

Shares of Extended Stay America Inc STAY climbed as much as 3 percent Wednesday after the hotel operator reported better-than-expected results for the fourth quarter.

The company reported adjusted EPS of $0.15, topping Street view by $0.02. Quarterly revenue of $296.3 million also came in above average Street forecast of $295.3 million.

Extended Stay America expects full-year revenue in the range of $1.27 billion to $1.29 billion. Analysts, on average, expect revenue of $1.29 billion for 2016.

Analysts Weigh In

Macquarie analyst Chad Beynon said following divestiture, STAY's portfolio of 629 properties is much more attractive for corporate contracts and guests. But, it remains roughly 26 percent below the average of its three main peers: Candlewood Suites blended M&F (IHG) at $61, TownePlace (MAR) at $76 and Hawthorn (WYN) at $54.

"In 2016, we expect the economy/midscale segments (where STAY plays) to lead the way, with STAY additionally closing the gap," Beynon wrote in a note to clients.

The analyst, who maintained his Outperform rating and price target of $25, has lowered 2016 EPS estimate to $0.93 from $1.01. Analysts, on average, project earnings of $0.96 a share.

"With recently lowered RevPAR estimates from all US hotel companies, we believe STAY's guidance of +4-6% in hotel revenues may prove to be conservative given the company's initiatives (benefiting from Revenue Mgmt System/higher renovated property RevPAR offset by slight TX exposure)," Beynon said.

Meanwhile, Nomura analyst Harry Curtis said STAY's fresh portfolio and about 8 percent EBITDA CAGR could make it an attractive acquisition target given its 7 percent free cash flow yield.

"In takeout scenario, we think STAY's fair value would be in the mid $20s," Curtis noted.

The analyst has a Buy rating and $16 price target. The company sees 2016 RevPAR growth of 4-6 percent, and Curtis said it should remain in that range over the next two years as freshly renovated hotels continue to drive ADR growth and increase STAY's share of corporate bookings.

"At 8.7x 2016E, the only hotel asset STAY should buy is its own stock. We believe there is upside to at least $16," Curtis said. The analyst also trimmed his 2016 EPS view to 98 cents a share from $1.04 a share.

Shares have traded between $10.56 and $22.00 in the past 52-weeks.