Can Cost-Cut Efforts Favor Extended Stay (STAY) Q1 Earnings?

Extended Stay America, Inc. STAY is scheduled to report first-quarter 2018 results on Apr 26, after market close.

While the company’s expense containment and cost-saving measures are expected to have favored first-quarter earnings, revenues in the quarter might have been affected by a shift in Easter date. Also, limited international presence continues to be a headwind for the company’s revenues.

Notably, shares of Extended Stay have gained 17% in the past year, underperforming the industry’s growth of 30.9% in the same time period.

Let’s discuss the factors that are likely to influence the company’s first-quarter results.

Efficient Cost Management to Favor Earnings

Extended Stay’s operating model posits a low-cost capital structure that has low fixed and variable costs. Even though an ongoing increase in wages can substantially put pressure on the company’s expenses, its cost-saving measures are expected to have driven margins in the quarter.

In 2017, Extended Stay’s operating profit increased 0.7% year over year and the trend is likely to continue in the first quarter as well. Subsequently, the Zacks Consensus Estimate for first-quarter earnings is pegged at 17 cents, suggesting 13.3% increase from the year-ago quarter.

Tricky Top-Line Scenario

Extended Stay looks to drive its revenue per available room (ReVPAR) by providing suitable services to value-conscious business travelers. In 2017, its ReVPAR increased 1.7% from the prior-year quarter on 1.1% growth in Average Daily Rate (ADR) and 40 basis points (bps) expansion in occupancy. Management believes that this upside trend will continue in the first quarter of 2018 by 1-3%.

However, the company predicts 50-75 bps negative impact on ReVPAR due to a shift in Easter date. Moreover, the company’s lack of exposure in emerging markets might limit its revenue growth potential.

The consensus estimate for revenues in the first quarter is pegged at $289.78 million, reflecting a decline of 0.4% from the prior-year quarter.

Our Quantitative Model Predicts a Beat

Extended Stay has the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The company has an Earnings ESP of +3.50%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Meanwhile, we caution 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.

Extended Stay America, Inc. Price and EPS Surprise

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

Other Stocks to Consider

Here are some other stocks from the Consumer Discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Wynn Resorts WYNN has an Earnings ESP of +5.45% and a Zacks Rank #3. The company is scheduled to report quarterly numbers on Apr 24.

Royal Caribbean RCL has an Earnings ESP of +0.50% and carries a Zacks Rank #2 (Buy). The company is slated to report quarterly figures on Apr 26.

Hilton HLT has an Earnings ESP of +3.09% and a Zacks Rank #3. The company is scheduled to report quarterly numbers on Apr 26.

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