Why Is Extended Stay America (STAY) Down 32.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Extended Stay America (STAY). Shares have lost about 32.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Extended Stay America due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Extended Stay Q4 Earnings Match Estimates, Down Y/Y

Extended Stay America, reported fourth-quarter 2019 earnings, which matched the Zacks Consensus Estimate. However, both earnings and revenues declined on a year-over-year basis thanks to decrease in comparable company-owned RevPAR.

Adjusted earnings during the reported quarter came in at 14 cents per share, which matched the Zacks Consensus Estimate but declined 33.3% year over year. The downside can primarily be attributed to lower revenues and hotel operating margin, partially mitigated by decrease in effective tax rate.

Detailed Revenue Discussion

Extended Stay reported total revenues of $284.2 million in the quarter, down 1.9% from year-ago figure of $289.7 million due to asset dispositions in 2018 and decline in comparable company-owned RevPAR. When adjusted for asset disposition, the company’s revenues fell 1.1% from the prior year.

Comparable system-wide RevPAR of $46.94 fell 0.8% on a year-over-year basis, owing to a 4% drop in average daily rate (ADR), offset by an increase of 240 basis points (bps) in occupancy.

Meanwhile, comparable company-owned RevPAR declined 1.7% to $48.13 from the prior-year quarter.

Operating Highlights

In the quarter under review, Extended Stay’s hotel operating margin came in at 48.3%, reflecting a decline of 280 bps from the prior-year quarter. The decline can be attributed to increase in hotel payroll and property insurance expenses, property taxes and maintenance expenses, and decline in comparable company-owned RevPAR.

Adjusted EBITDA totaled $108.8 million, down 14.1% from the comparable year-ago period due to CEO and related transition costs, legal settlement expenditure and other unexpected net expense.
Balance Sheet

Cash and cash equivalents as of Dec 31, 2019 was $346.8 million compared with $287.5 million on Dec 31, 2018. At the end of the fourth quarter, total debt (net of unamortized deferred financing costs and debt discounts) amounted to $2,639.8 million, up from $2,402.6 million at 2018-end.

Extended Stay invested $83.3 million in capital expenditures in the quarter under review. On Feb 26, the company’s board of directors announced cash distributions totaling 23 cents per share, payable on Mar 26, 2020 to shareholders of record as of Mar 12, 2020. The company repurchased 2.2 million shares during the reported quarter for an aggregate purchase of $31 million. At the end of the fourth quarter, total shares remaining under its share repurchase authorization were approximately $101.1 million.

2020 Outlook

Extended Stay expects total revenues within $1,226-$1,246 million. Moreover, comparable system-wide RevPAR is envisioned in the range of down 0.5% to up 1.5%.

Adjusted EBITDA is projected between $505 million and $525 million. Adjusted earnings per share are anticipated between 78 cents and 90 cents. The mid-point of the guidance range of 84 cents is well below the Zacks Consensus Estimate of 91 cents. Capital expenditure for 2020 is anticipated in the band of $210-$240 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -34.46% due to these changes.

VGM Scores

At this time, Extended Stay America has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Extended Stay America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.