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What's in the Cards for Extended Stay (STAY) in Q3 Earnings?

Zacks Equity Research

Extended Stay America, Inc. STAY is scheduled to report third-quarter 2017 results on Nov 7, before the opening bell.

Extended Stay had been renovating its properties over the past few quarters, which hurt its occupancy rates. However, the trend is anticipated to improve in the third quarter as the company has completed renovating all the rooms. The capital expenditures related to the same are expected to be down significantly in the quarter.

Meanwhile, the transformational initiatives undertaken by the company 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.

In fact, per second-quarter conference call, management anticipates third-quarter RevPAR growth in the band of 1% to 3% and adjusted EBITDA in the range of $184 million to $190 million. The Zacks Consensus Estimate for the quarter’s RevPAR growth is pegged close to 2%.

However, we note that 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 may boost results.

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 growth of favorable margins.

However, management noted that corporate demand had been low thus far in 2017 and the same might continue into the third quarter. Nevertheless, strong demand from leisure customers primarily through online travel agencies (OTA) has been aiding in offsetting declines in corporate travel and global distribution system channels.

Markedly, the Zacks Consensus Estimate for the quarter’s top line is pegged at $359.3 million, reflecting growth of 1.4% year over year. The same for the quarter’s bottom line is pegged at 38 cents per share, implying 5.1% growth.

Further, our proven model shows that Extended Stay has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat in this quarter. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate is pegged at +0.44%. This is a major indicator of a likely positive earnings surprise.

Zacks Rank: Extended Stay’s Zacks Rank #3 when combined with a positive ESP makes us reasonably confident of an earnings beat.

Extended Stay America, Inc. Price and EPS Surprise

Extended Stay America, Inc. Price and EPS Surprise | Extended Stay America, Inc. Quote

Stocks That Warrant a Look

Here are some other stocks in the same space that you may want to consider as these have the right combination of elements to post earnings beat this quarter too.

Choice Hotels International, Inc. CHH has an Earnings ESP of +0.72% and a Zacks Rank #2 (Buy).

Marriott International, Inc. MAR has an Earnings ESP of +0.17% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Belmond Ltd. BEL has an Earnings ESP of +6.25% and a Zacks Rank #3.

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