It has been about a month since the last earnings report for Extended Stay America (STAY - Free Report) . Shares have lost about 3.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Extended Stay Q2 Earnings Beat Estimates
Extended Stay America reported second-quarter 2020 results, wherein earnings and revenues beat the Zacks Consensus Estimate. However, both the top and the bottom line declined on a year-over-year basis, thanks to a drop in comparable company-owned RevPAR owing to the coronavirus outbreak.
Nonetheless, the company witnessed a sequential improvement in RevPAR in the months of April, May and June 2020. Also, system-wide occupancy levels have improved significantly over the recent weeks.
Extended Stay America’s President and CEO Bruce Haase stated “since June, STAY is generating positive cash flow, and with July results showing continued improvement, we repaid our $350 million ESH REIT revolver last week. While others in the industry have deeply cut management and staff, ESA has continued to invest for the long-term growth of the Company.”
Notably, the statement was backed by positive investor sentiments as shares of the company surged 4.8% during after-hour trading session on Aug 10.
Earnings & Revenue Discussion
During the second quarter, adjusted loss per share came in at 4 cents, narrower than the Zacks Consensus Estimate of a loss of 5 cents. In the prior-year quarter, the company reported adjusted earnings of 32 cents per share. The downside can primarily be attributed to a decline in comparable system-wide RevPAR along with a rise in depreciation and amortization and net interest expenses, partially offset by lower income tax expenses.
Extended Stay reported total revenues of $230.8 million in the second quarter, beating the consensus mark of $227 million by 1.5%. However, the top line declined 28.7% on a year-over-year basis primarily due to the negative impact of COVID-19.
Comparable system-wide RevPAR of $38.38 fell 28.7% on a year-over-year basis owing to an 18.3% drop in average daily rate (ADR) and a 1,010 basis points (bps) decrease in occupancy rate.
Meanwhile, comparable company-owned RevPAR fell 29.9% to $38.97 from $55.62 reported in the prior-year quarter.
In the quarter under review, Extended Stay’s hotel operating margin came in at 41.7%, reflecting a decline of 1,270 bps from the prior-year quarter primarily because of a decrease in RevPAR owing to the pandemic.
Adjusted EBITDA totaled $74.4 million, down 51.6% from the comparable year-ago period due to a decline in comparable system-wide RevPAR.
Cash and cash equivalents as of Jun 30, 2020, were $667.6 million compared with $346.8 million on Dec 31, 2019. At the end of the second quarter, total debt (net of unamortized deferred financing costs and debt discounts) amounted to $3,033.7 million, up from $2,639.8 million at 2019-end.
Extended Stay’s capital expenditures in the quarter under review came in at $50.7 million. Notably, renovation capital of $1.8 million and hotel development capital of $21.8 million were included in the same.
On Aug 10, the company declared a dividend payout of 1 cent to ESH Class A and B shareholders. The dividend is payable on Sep 8, to shareholders of record at the close of business as of Aug 25, 2020. With the pandemic and business conditions improving, the company continues to review future distributions in order to maintain its REIT status.
Coming to share repurchases, the company did not repurchase any Paired Shares during the second quarter of 2020. As of Jun 30, 2020, total shares remaining under its share repurchase authorization were approximately $101.1 million.
During the second quarter, the company opened three company-owned and one franchised hotel.
As of Jun 30, 2020, the company had a pipeline of 69 hotels out of which 11 hotels were company-owned and 58 hotels were third-party related. Altogether, the hotels had approximately 8,400 rooms.
For the third quarter of 2020, the company expects comparable system-wide RevPAR in the range of (21%) to (18%). Company-owned RevPAR is estimated in the range of (22%) to (19%). Adjusted EBITDA is projected in the band of $98 million to $105 million.
For 2020, the company expects depreciation and amortization in the range of $198 to $203 million and capital expenditures between $160 million and $190 million. Net interest expenses are estimated at $133 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month. The consensus estimate has shifted 6.67% due to these changes.
At this time, Extended Stay America has a poor Growth Score of F, 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 second quintile 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.
Extended Stay America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.