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What to Expect From Extended Stay (STAY) in Q2 Earnings

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Extended Stay America, Inc. (STAY - Free Report) is scheduled to report second-quarter 2017 results on Aug 1, before the opening bell.

Last quarter, Extended Stay delivered a positive earnings surprise of 25%. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 21.11%.

Let’s see how things are shaping up for this announcement.

Extended Stay America, Inc. Price and EPS Surprise

Factors Likely to Influence Q2 Results

Extended Stay has been renovating its properties lately, which has hurt its occupancy rates in the recent quarters. However, the trend is expected to improve in the to-be-reported quarter as the company is slated to complete renovating all the rooms in the quarter. Nevertheless, the capital expenditures related to the same, although expected to be lower this quarter, will still persist.

Moreover, the company’s lack of exposure to emerging markets might limit its revenue growth potential. That said, the same also limits its exposure to volatile oil markets and unfavorable currency impact, which should boost results. Moreover, per the latest earnings conference call, management anticipates to begin franchise sales in the to-be-reported quarter, which might add to revenue growth.

Meanwhile, the transformational initiatives undertaken by Extended Stay are expected to continue aiding RevPAR (Revenue per Available Room) as hotels that have already been renovated are witnessing increase in Average Daily Rate (ADR) and occupancy levels.

Additionally, various sales and marketing initiatives, and limited exposure to inbound international travel are likely to drive the top line. Also, the company expects its expense containment and cost savings measures to support the growth of favorable margins.

Per first-quarter conference call, management anticipates an acceleration of revenue growth and strong earnings growth in the to-be-reported quarter compared with the previous quarter. In fact, management projected a RevPAR growth in the band of 2% to 4% and adjusted EBITDA (earnings before interest, tax, depreciation and amortization) in the range of $170 million and $175 million, reflecting a growth of 3.5% to 6.5% year over year.

However, management noted that corporate demand had been low thus far in 2017 and the same might continue into the second quarter.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Extended Stay this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as elaborated below.

Zacks ESP: Extended Stay has an Earnings ESP of -3.13%. This is because the Most Accurate estimate is 31 cents, while the Zacks Consensus Estimate is pegged at 32 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Extended Stay currently carries a Zacks Rank #3, which when combined with a negative ESP makes surprise prediction difficult.

Notably, we caution you against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions

Stocks to Consider

Here are some companies that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Cedar Fair, L.P. (FUN - Free Report) has an Earnings ESP of +7.84% and a Zacks Rank #2.

Time Warner Inc. has an Earnings ESP of +1.68% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wyndham Worldwide Corporation has an Earnings ESP of +1.32% and a Zacks Rank #3.

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