What's In The Cards For Extended Stay (STAY) In Q4 Earnings?

Extended Stay America, Inc. (NYSE:STAY) is scheduled to report fourth-quarter 2017 results on Feb 27, before the opening bell.

Last quarter, the company posted a negative earnings surprise of 7.9%. Extended Stay surpassed expectations in two of the last four quarters, the average being a positive 14.2%.

Let’s discuss the factors that will likely influence the company’s fourth-quarter results:

The transformational initiatives undertaken by the company are expected to continue driving RevPAR (Revenue per Available Room) as hotels that have been renovated are witnessing increased Average Daily Rate (ADR) and occupancy levels. For the fourth quarter, the company expects comparable RevPAR growth between 0% and 2%.

Additionally, various sales and marketing initiatives, and limited exposure to inbound international travel are likely to drive the top line. Also, franchise sales in the quarter might add to revenues. The Zacks Consensus Estimate for revenues is pegged at $301.06 million, implying a 1.8% decline. 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.

The company’s expense containment and cost-saving measures have been supporting margins. In the first nine months of 2017, operating margins expanded 60 basis points to 55.7%. The trend is expected to continue in the to-be-reported quarter.

However, the company incurred approximately $0.3 million in expenses in the prior quarter owing to the post-hurricane maintenance efforts. The company anticipates to incur the same amount in the fourth quarter mainly for landscaping.

The company expects adjusted EBITDA between $127 million and $132 million in the fourth quarter, lower than the prior-year quarter. Moreover, the Zacks Consensus Estimate for earnings per share is pegged at 17 cents, implying 15% a year-over-year decline.

Quantitative Model Prediction

Our quantitative model shows that Extended Stay America does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — that are needed for increasing the odds of an earnings beat.

Zacks ESP: Extended Stay America has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Extended Stay America carries a Zacks Rank #2, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, 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

Stocks to Consider

Here are a few 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:

Carnival (LON:CCL) Corporation (NYSE:CCL) has an Earnings ESP of +2.38% and a Zacks Rank #3. The company is expected to report quarterly numbers on Mar 27.

Discovery Communications, Inc. (NASDAQ:DISCA) has an Earnings ESP of +4.70% and a Zacks Rank #3. The company is scheduled to report quarterly results on Feb 27.

Red Rock Resorts, Inc. (NASDAQ:RRR) has an Earnings ESP of +9.38% and a Zacks Rank #3. The company is expected to report quarterly numbers on Mar 6.

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