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Extended Stay (STAY) Q3 Earnings Beat Estimates, Stock Up

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Extended Stay America, Inc. reported third-quarter 2020 results, wherein earnings and revenues beat the Zacks Consensus Estimate. However, both the top and bottom lines 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 each month of third-quarter 2020. Following the announcement, shares of the company grew 2.1% during the after-hour trading session on Nov 9.

Meanwhile, Extended Stay America’s president and CEO Bruce Haase stated, “We generated strong free cash flow and fully repaid our REIT’s outstanding revolver during the quarter. While others in the industry are forced to make difficult short-term decisions, we continue to invest in our properties, our people, and our longer-term strategies which will enable further long-term success as the lodging markets recover.”

Extended Stay America, Inc. Price, Consensus and EPS Surprise

 

Extended Stay America, Inc. Price, Consensus and EPS Surprise

Extended Stay America, Inc. price-consensus-eps-surprise-chart | Extended Stay America, Inc. Quote

Earnings & Revenue Discussion

During the third quarter, adjusted earnings per share of 19 cents beat the Zacks Consensus Estimate of 12 cents by 58.3%. However, the bottom line dropped 42.4% from 33 cents reported in the prior-year quarter. The downside can be primarily attributed to a decline in comparable system-wide RevPAR, partially offset by an income tax benefit, lower net interest expenses and a reduction in paired shares outstanding.

For the quarter under review, total revenues came in at $285.9 million, beating the consensus mark of $277 million by 3.2%. However, the top line declined 14.1% on a year-over-year basis primarily due to negative impacts of COVID-19.

Comparable system-wide RevPAR of $46.75 fell 14.7% on a year-over-year basis owing to a 13.7% drop in average daily rate and a 100 basis points (bps) decrease in occupancy rate.

Meanwhile, comparable company-owned RevPAR fell 15.7% to $47.76 during the third quarter, compared with $56.66 reported in the prior-year quarter.

Operating Highlights

In the quarter under review, Extended Stay’s hotel operating margin came in at 47.3%, reflecting a decline of 650 bps from the prior-year quarter primarily because of a decrease in RevPAR owing to the pandemic.

Adjusted EBITDA totaled $112.7 million, down 27.9% from the comparable year-ago period due to a decline in comparable system-wide RevPAR.

Balance Sheet

Cash and cash equivalents as of Sep 30, 2020, were $381.5 million compared with $346.8 million on Dec 31, 2019. At the end of the third quarter, total debt (net of unamortized deferred financing costs and debt discounts) amounted to $2,684 million, up from $2,639.8 million at 2019-end.

Extended Stay’s capital expenditures in the quarter under review came in at $39.6 million. Notably, renovation capital of $2.9 million and hotel development capital of $16.7 million were included in the same.

On Nov 9, the company declared a dividend payout of $0.01 to common shareholders. The dividend is payable on Dec 8, to shareholders of record at the close of business as of Nov 24, 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 third quarter of 2020.As of Sep 30, 2020, total shares remaining under its share repurchase authorization were approximately $101.1 million.

Unit Developments

During the third quarter, the company opened one company-owned hotel and one franchised hotel.

As of Sep 30, 2020, the company had a pipeline of 65 hotels out of which 10 hotels were company-owned and 55 hotels were third-party related. Altogether, the hotels have approximately 7,900 rooms.

2020 Outlook

For the fourth quarter of 2020, the company expects comparable system-wide RevPAR in the range of (15%) to (11%). Adjusted EBITDA is projected in the band of $78 million to $88 million.
    
For 2020, the company expects depreciation and amortization in the range of $203 to $206 million and capital expenditures between $170 million and $190 million. Net interest expenses are estimated at $130 million.

Net income for 2020 is expected in the range of $31 million to $45 million, while adjusted EBITDA is anticipated in the range of $363 million to $373 million.

Zacks Rank & Peer Releases

Extended Stay currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Hyatt Hotels Corporation (H - Free Report) reported dismal third-quarter 2020 results, wherein earnings and revenues not only missed the Zacks Consensus Estimate but also declined sharply on a year-over-year basis. The company reported adjusted loss per share of $1.48, wider than the Zacks Consensus Estimate of a loss of $1.25. In the prior-year quarter, the company had reported adjusted earnings per share of 37 cents. Revenues of $399 million missed the consensus mark of $449 million and declined 67.2% from a year ago.

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