On Tuesday, LuxUrban Hotels Inc. (NASDAQ:LUXH) experienced a shift in stock rating, as Jones Trading moved the company's status from Buy to Hold. This adjustment follows the company's recent announcement that their franchise agreement with Wyndham has been terminated as of May 6. LuxUrban Hotels is currently transitioning its properties away from Wyndham's systems, aiming to regain full control by the end of May.
The termination of the agreement with Wyndham is expected to negatively impact LuxUrban's earnings in the short term. A partnership consideration expense of $2.7 million, which equates to $0.05 per share, was recorded in the first quarter of 2024. Furthermore, the company anticipates additional costs as a result of the agreement's end.
As of March 31, LuxUrban reported having 13 properties, down from 14 in the last quarter of 2023, with a total of 1,341 rental units. These properties have a weighted average lease term of 15.2 years, which extends to 19.5 years when including options for extension.
LuxUrban's recent earnings report fell short of expectations, with an adjusted EBITDA of $2.5 million, which did not meet the analyst's projection of $5.3 million or the consensus estimate of $6.4 million. The first quarter of 2024 also concluded with the company reporting an earnings per share (EPS) of ($0.35), a significant deviation from the anticipated ($0.11). The discrepancies have been attributed to the unexpected termination of the Wyndham contract and higher expenses than initially forecasted.
The loss of the Wyndham agreement has led analysts to question LuxUrban's ability to achieve its financial objectives, particularly the target of becoming operationally cash flow positive in the second half of 2024.
Jones Trading has expressed concerns that the current challenges facing LuxUrban, such as the need to improve working capital and manage operational changes within its portfolio, may outweigh potential benefits for investors at this time.
InvestingPro Insights
As LuxUrban Hotels Inc. navigates the post-Wyndham landscape, real-time data from InvestingPro sheds light on the company's current financial health. With a market capitalization of $22.75 million and a significant revenue growth of 158.75% in the last twelve months as of Q4 2023, LuxUrban's expansion is evident.
Still, the company's negative P/E ratio of -0.35 for the same period reflects challenges in profitability, and the revenue valuation multiple suggests the stock is trading at low multiples relative to its sales.
Two InvestingPro Tips for LuxUrban indicate that the company operates with a significant debt burden and may struggle to make interest payments on its debt. These concerns are particularly relevant given the recent termination of the franchise agreement with Wyndham and the associated costs.
On the positive side, analysts expect net income and sales growth for LuxUrban in the current year, which could offer some respite to investors. It's worth noting that the stock has experienced a steep price decline over the last week, month, and three months, with a one-week price total return of -29.35% and a one-month return of -46.67%.
For investors seeking a deeper analysis, InvestingPro provides additional insights with more than 20 InvestingPro Tips available. These tips can help investors make more informed decisions, and by using the coupon code PRONEWS24, they can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. LuxUrban's next earnings date is set for September 23, 2024, which will be a significant event for the company and its stakeholders.
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