Intrinsic value of Extended Stay America / ESH Hospitality - STAY

Previous Close

$21.85

  Intrinsic Value

$195.81

stock screener

  Rating & Target

str. buy

+796%

Previous close

$21.85

 
Intrinsic value

$195.81

 
Up/down potential

+796%

 
Rating

str. buy

We calculate the intrinsic value of STAY stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2013(a)
   2014
   2015
   2016
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.07
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,133
  1,309
  1,339
  1,373
  1,412
  1,455
  1,502
  1,553
  1,608
  1,668
  1,732
  1,800
  1,873
  1,951
  2,034
  2,121
  2,214
  2,313
  2,417
  2,527
  2,643
  2,765
  2,895
  3,031
  3,174
  3,325
  3,484
  3,652
  3,828
  4,014
  4,209
Variable operating expenses, $m
 
  937
  958
  982
  1,009
  1,039
  1,072
  1,108
  1,147
  1,188
  1,233
  1,263
  1,314
  1,368
  1,426
  1,488
  1,553
  1,622
  1,695
  1,772
  1,854
  1,940
  2,030
  2,126
  2,226
  2,332
  2,444
  2,561
  2,685
  2,815
  2,952
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  821
  937
  958
  982
  1,009
  1,039
  1,072
  1,108
  1,147
  1,188
  1,233
  1,263
  1,314
  1,368
  1,426
  1,488
  1,553
  1,622
  1,695
  1,772
  1,854
  1,940
  2,030
  2,126
  2,226
  2,332
  2,444
  2,561
  2,685
  2,815
  2,952
Operating income, $m
  312
  372
  381
  391
  403
  416
  430
  445
  461
  479
  498
  538
  559
  583
  607
  634
  661
  691
  722
  755
  789
  826
  864
  905
  948
  993
  1,041
  1,091
  1,143
  1,199
  1,257
EBITDA, $m
  480
  831
  851
  872
  897
  924
  954
  987
  1,022
  1,060
  1,100
  1,144
  1,190
  1,240
  1,292
  1,348
  1,407
  1,469
  1,536
  1,605
  1,679
  1,757
  1,839
  1,926
  2,017
  2,113
  2,214
  2,320
  2,432
  2,550
  2,674
Interest expense (income), $m
  201
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Earnings before tax, $m
  78
  372
  381
  391
  403
  416
  430
  445
  461
  479
  498
  538
  559
  583
  607
  634
  661
  691
  722
  755
  789
  826
  864
  905
  948
  993
  1,041
  1,091
  1,143
  1,199
  1,257
Tax expense, $m
  -5
  100
  103
  106
  109
  112
  116
  120
  125
  129
  135
  145
  151
  157
  164
  171
  179
  186
  195
  204
  213
  223
  233
  244
  256
  268
  281
  294
  309
  324
  339
Net income, $m
  86
  272
  278
  286
  294
  303
  314
  325
  337
  350
  364
  392
  408
  425
  443
  463
  483
  504
  527
  551
  576
  603
  631
  661
  692
  725
  760
  796
  835
  875
  918

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  60
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  4,450
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Adjusted assets (=assets-cash), $m
  4,390
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Revenue / Adjusted assets
  0.258
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Average production assets, $m
  4,153
  4,406
  4,508
  4,623
  4,754
  4,898
  5,056
  5,228
  5,414
  5,615
  5,831
  6,061
  6,307
  6,569
  6,847
  7,143
  7,456
  7,787
  8,138
  8,508
  8,899
  9,311
  9,746
  10,205
  10,688
  11,197
  11,732
  12,296
  12,890
  13,514
  14,170
Working capital, $m
  0
  -2,708
  -2,770
  -2,841
  -2,921
  -3,010
  -3,107
  -3,213
  -3,327
  -3,450
  -3,583
  -3,725
  -3,876
  -4,037
  -4,208
  -4,389
  -4,582
  -4,785
  -5,000
  -5,228
  -5,468
  -5,722
  -5,989
  -6,271
  -6,568
  -6,880
  -7,209
  -7,556
  -7,921
  -8,304
  -8,708
Total debt, $m
  2,926
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total liabilities, $m
  3,705
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total equity, $m
  745
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total liabilities and equity, $m
  4,450
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Debt-to-equity ratio
  3.928
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  0.156
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  86
  272
  278
  286
  294
  303
  314
  325
  337
  350
  364
  392
  408
  425
  443
  463
  483
  504
  527
  551
  576
  603
  631
  661
  692
  725
  760
  796
  835
  875
  918
Depreciation, amort., depletion, $m
  168
  459
  470
  481
  494
  509
  524
  542
  560
  580
  602
  606
  631
  657
  685
  714
  746
  779
  814
  851
  890
  931
  975
  1,020
  1,069
  1,120
  1,173
  1,230
  1,289
  1,351
  1,417
Funds from operations, $m
  332
  731
  748
  767
  788
  812
  838
  866
  897
  930
  966
  999
  1,039
  1,082
  1,128
  1,177
  1,228
  1,283
  1,341
  1,402
  1,466
  1,534
  1,606
  1,681
  1,761
  1,845
  1,933
  2,026
  2,124
  2,226
  2,335
Change in working capital, $m
  21
  -53
  -62
  -71
  -80
  -89
  -97
  -106
  -115
  -123
  -132
  -142
  -151
  -161
  -171
  -182
  -192
  -204
  -215
  -228
  -240
  -253
  -267
  -282
  -297
  -313
  -329
  -346
  -365
  -384
  -403
Cash from operations, $m
  311
  784
  810
  838
  868
  901
  935
  972
  1,012
  1,054
  1,098
  1,140
  1,190
  1,243
  1,299
  1,358
  1,421
  1,487
  1,556
  1,629
  1,706
  1,787
  1,873
  1,963
  2,058
  2,157
  2,262
  2,372
  2,488
  2,610
  2,738
Maintenance CAPEX, $m
  0
  -432
  -441
  -451
  -462
  -475
  -490
  -506
  -523
  -541
  -562
  -583
  -606
  -631
  -657
  -685
  -714
  -746
  -779
  -814
  -851
  -890
  -931
  -975
  -1,020
  -1,069
  -1,120
  -1,173
  -1,230
  -1,289
  -1,351
New CAPEX, $m
  -189
  -87
  -101
  -116
  -130
  -144
  -158
  -172
  -186
  -201
  -215
  -231
  -246
  -262
  -278
  -295
  -313
  -331
  -350
  -370
  -391
  -412
  -435
  -459
  -483
  -509
  -536
  -564
  -593
  -624
  -657
Cash from investing activities, $m
  -165
  -519
  -542
  -567
  -592
  -619
  -648
  -678
  -709
  -742
  -777
  -814
  -852
  -893
  -935
  -980
  -1,027
  -1,077
  -1,129
  -1,184
  -1,242
  -1,302
  -1,366
  -1,434
  -1,503
  -1,578
  -1,656
  -1,737
  -1,823
  -1,913
  -2,008
Free cash flow, $m
  146
  265
  268
  271
  276
  281
  287
  294
  302
  311
  321
  327
  338
  351
  364
  378
  393
  410
  427
  445
  465
  485
  507
  530
  554
  580
  607
  635
  665
  697
  730
Issuance/(repayment) of debt, $m
  -701
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Issuance/(repurchase) of shares, $m
  650
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -189
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total cash flow (excl. dividends), $m
  -43
  265
  268
  271
  276
  281
  287
  294
  302
  311
  321
  327
  338
  351
  364
  378
  393
  410
  427
  445
  465
  485
  507
  530
  554
  580
  607
  635
  665
  697
  730
Retained Cash Flow (-), $m
  5
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  8
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
Cash available for distribution, $m
 
  265
  268
  271
  276
  281
  287
  294
  302
  311
  321
  327
  338
  351
  364
  378
  393
  410
  427
  445
  465
  485
  507
  530
  554
  580
  607
  635
  665
  697
  730
Discount rate, %
 
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
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  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
PV of cash for distribution, $m
 
  265
  268
  271
  276
  281
  287
  294
  302
  311
  321
  327
  338
  351
  364
  378
  393
  410
  427
  445
  465
  485
  507
  530
  554
  580
  607
  635
  665
  697
  730
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Extended Stay America, Inc. (Extended Stay) is an integrated owner/operator of Company-branded hotels in North America. The Company operates in hotel operations segment. The Company's business operates in the extended stay sector of the lodging industry. As of December 31, 2016, the Company owned and operated 629 hotels comprising approximately 69,400 rooms located in 44 states across the United States and in Canada. The Company owns and operates its hotels under its brand, Extended Stay America, which serves the mid-price extended stay sector. As of December 31, 2016, the Company also owned and operated three Extended Stay Canada hotels. The Company operates its hotels owned by ESH Hospitality, Inc. (ESH REIT). The hotels are operated by the Operating Lessees, subsidiaries of the Company and are managed by ESA Management LLC (ESA Management), a subsidiary of the Company. ESH Strategies, a subsidiary of the Company, owns the brands related to its business. _tck('aft');

FINANCIAL RATIOS  of  Extended Stay America / ESH Hospitality (STAY)

Valuation Ratios
P/E Ratio 52
Price to Sales 3.9
Price to Book 6
Price to Tangible Book
Price to Cash Flow 14.4
Price to Free Cash Flow 36.7
Growth Rates
Sales Growth Rate 12.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -52.8%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 392.8%
Total Debt to Equity 392.8%
Interest Coverage 1
Management Effectiveness
Return On Assets 6.7%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 2.1%
Ret/ On T. Cap. - 3 Yr. Avg. 1.6%
Return On Equity 11.5%
Return On Equity - 3 Yr. Avg. 6.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 52.3%
Gross Margin - 3 Yr. Avg. 51.4%
EBITDA Margin 39.5%
EBITDA Margin - 3 Yr. Avg. 24.5%
Operating Margin 27.5%
Oper. Margin - 3 Yr. Avg. 27.9%
Pre-Tax Margin 6.9%
Pre-Tax Margin - 3 Yr. Avg. 5.1%
Net Profit Margin 7.6%
Net Profit Margin - 3 Yr. Avg. 4.8%
Effective Tax Rate -6.4%
Eff/ Tax Rate - 3 Yr. Avg. 8.4%
Payout Ratio 0%

STAY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the STAY stock intrinsic value calculation we used $1283 million for the last fiscal year's total revenue generated by Extended Stay America / ESH Hospitality. The default revenue input number comes from 2013 income statement of Extended Stay America / ESH Hospitality. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our STAY stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 0%, whose default value for STAY is calculated based on our internal credit rating of Extended Stay America / ESH Hospitality, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Extended Stay America / ESH Hospitality.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of STAY stock the variable cost ratio is equal to 71.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for STAY stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Extended Stay America / ESH Hospitality.

Corporate tax rate of 27% is the nominal tax rate for Extended Stay America / ESH Hospitality. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the STAY stock is equal to 0.6%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for STAY are equal to 336.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Extended Stay America / ESH Hospitality operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for STAY is equal to -206.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $0 million for Extended Stay America / ESH Hospitality - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 193 million for Extended Stay America / ESH Hospitality is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Extended Stay America / ESH Hospitality at the current share price and the inputted number of shares is $4.2 billion.

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COMPANY NEWS

▶ 3 Hotel Stocks Set to Crush the Market in 2H18   [Jul-13-18 08:36AM  Zacks]
▶ 5 Stocks to Pop on Fourth of July Celebrations   [Jul-03-18 09:10AM  Zacks]
▶ Extended Stay America: 1Q Earnings Snapshot   [Apr-26-18 06:24PM  Associated Press]
▶ Extended Stay America reports 4Q loss   [09:47AM  Associated Press]
▶ Extended Stay CEO Gerry Lopez to step down   [Dec-18-17 04:30PM  MarketWatch]
▶ 10 Stocks Caxton Associates Keeps Buying   [Nov-27-17 03:45PM  GuruFocus.com]
▶ Why Extended Stay America Inc Stock Tumbled Today   [Nov-07-17 01:21PM  Motley Fool]
▶ Extended Stay America misses Street 3Q forecasts   [06:55AM  Associated Press]
▶ Extended Stay America Meets 80-Plus Relative Strength Rating Benchmark   [Sep-22-17 03:00AM  Investor's Business Daily]
▶ Extended Stay America Announces Credit Rating Upgrades   [Aug-14-17 08:45AM  Business Wire]
Financial statements of STAY
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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