Market Overview

Morgan Stanley Says Extended Stay Is Undervalued By Investors

Share:
Morgan Stanley Says Extended Stay Is Undervalued By Investors

The lodging industry has seen multiple M&A and strategic optionality deals over the past year and investors are likely undervaluing Extended Stay America Inc (NYSE: STAY)'s ability to create value, according to Morgan Stanley.

The Analyst

Morgan Stanley's Thomas Allen upgraded Extended Stay America from Equal-weight to Overweight with a price target lifted from $21 to $23.

The Thesis

One of the more recent deals in the lodging industry consists of Wyndham buying the "La Quinta" brand, a move that prompted La Quinta to be one of the best performing stocks within the group over the past six months, Allen said in a note.

There are a few scenarios available to Extended Stay that may generate similar outperformance in the stock, including:

  • Selling itself to a larger multi-brand lodging company that can pay a high multiple to realize "significant" synergies;
  • Create a residual standalone REIT that would trade at a higher EBITDA multiple as it would target a different investor group; and
  • The residual REIT could benefit from being part of a larger brand network for the first time.

There's no indication any of these scenarios are being considered by Extended Stay's management team, the analyst wrote. Allen said the management team suggested at a recent conference "it's a possibility" that some form of separation of its real estate and M&F business may occur.

Bottom line, Extended Stay's business is "undervalued" in its current asset-heavy structure.

Price Action

Shares of Extended Stay America were trading higher by more than 6 percent Thursday at $21.04.

Related Links:

Credit Suisse On The Timeshare Sector: What's Not To Like?

Deutsche Bank: What To Expect From Online Travel Agency Earnings

Latest Ratings for STAY

DateFirmActionFromTo
Nov 2019DowngradesBuyNeutral
Nov 2019DowngradesBuyNeutral
Nov 2019MaintainsEqual-Weight

View More Analyst Ratings for STAY
View the Latest Analyst Ratings

Posted-In: Analyst Color REIT Upgrades Price Target Travel Analyst Ratings General Real Estate Best of Benzinga

 

Related Articles (STAY)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
TOLGoldman SachsInitiates Coverage On42.0
KBHGoldman SachsInitiates Coverage On36.0
YEXTSunTrust Robinson HumphreyMaintains28.0
LHCGSunTrust Robinson HumphreyMaintains160.0
DLRSunTrust Robinson HumphreyMaintains140.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Sears To Close 72 More Stores As The Retailer Continues To Struggle

Mid-Day Market Update: Dow Down Over 250 Points; Madrigal Pharmaceuticals Shares Spike Higher