The Barron's Top
1200 U.S. Financial Advisors on Hotel Industry in 2020!
The summer travel season will look different this year, but that doesn’t mean there isn’t value to be found among hotel stocks.
Check out Extended Stay America (ticker: STAY). Its shares are down 24% this year—worse than the S&P 500 index, which is off 6%, but better than hotel stocks like Marriott International (MAR) and Hilton Worldwide Holdings (HLT), down 39% and 27%, respectively. And Extended Stay stock, which recently was changing hands at $11.33, has room to run.
Unlike other hotel companies, Extended Stay hasn’t had to make radical changes to its operations. Its hotels have been able to remain open during the crisis, and occupancy rarely dipped below 60% while the broader industry saw occupancy fall to 20%.
Extended Stay hotels also aren’t anchored by restaurants and spas, which would have had to close in response to social-distancing guidelines. Their lobbies are generally sparse, and there is a quick route to rooms.
The chain has also been able to balance the effects of increased cleaning costs. The few common areas are cleaned frequently, and rooms get a deep cleansing when they are turned over. However, intra-stay room cleaning is less frequent than at typical hotel chains—something that may be desired in the current climate, Chris Woronka, an analyst at Deutsche Bank, tells Barron’s.
Extended Stay currently trades at 9.3 times enterprise value to earnings before interest, taxes, depreciation, and amortization, or Ebitda, well below peers, which trade at just over 16 times Ebitda. Woronka sees the shares going to $16.
As economies reopen, Extended Stay represents a compelling opportunity. It has $700 million in cash, after drawing on its revolving credit line, and no significant maturities until 2024. To be sure, as a result of an amendment to its revolver, it has agreed to limit share repurchases and dividends. Its payout this quarter is a mere penny, down from 23 cents in the previous one.