Critical Contrast: Extended Stay America (STAY) & La Quinta (LQ)

La Quinta (NYSE: LQ) and Extended Stay America (NYSE:STAY) are both mid-cap consumer discretionary companies, but which is the superior business? We will compare the two businesses based on the strength of their profitability, institutional ownership, earnings, valuation, dividends, analyst recommendations and risk.

Institutional & Insider Ownership

98.5% of La Quinta shares are held by institutional investors. Comparatively, 98.5% of Extended Stay America shares are held by institutional investors. 1.6% of La Quinta shares are held by company insiders. Comparatively, 0.6% of Extended Stay America shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Profitability

This table compares La Quinta and Extended Stay America’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
La Quinta 3.11% 6.23% 1.45%
Extended Stay America 5.83% 14.53% 4.74%

Dividends

Extended Stay America pays an annual dividend of $0.84 per share and has a dividend yield of 5.0%. La Quinta does not pay a dividend. Extended Stay America pays out 215.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Extended Stay America has increased its dividend for 2 consecutive years.

Earnings & Valuation

This table compares La Quinta and Extended Stay America’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
La Quinta $1.01 billion 2.12 -$1.28 million $0.26 69.96
Extended Stay America $1.27 billion 2.56 $69.93 million $0.39 43.38

Extended Stay America has higher revenue and earnings than La Quinta. Extended Stay America is trading at a lower price-to-earnings ratio than La Quinta, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

La Quinta has a beta of 1.85, meaning that its share price is 85% more volatile than the S&P 500. Comparatively, Extended Stay America has a beta of 0.98, meaning that its share price is 2% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for La Quinta and Extended Stay America, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
La Quinta 0 2 2 0 2.50
Extended Stay America 0 1 6 0 2.86

La Quinta currently has a consensus price target of $17.08, suggesting a potential downside of 6.08%. Extended Stay America has a consensus price target of $20.75, suggesting a potential upside of 22.64%. Given Extended Stay America’s stronger consensus rating and higher possible upside, analysts plainly believe Extended Stay America is more favorable than La Quinta.

Summary

Extended Stay America beats La Quinta on 13 of the 17 factors compared between the two stocks.

About La Quinta

La Quinta Holdings Inc. is an owner, operator and franchisor of select-service hotels primarily serving the midscale and upper-midscale sectors under the La Quinta brand. The Company’s segments include owned hotels, franchise and management, and corporate and other. The owned hotels segment is engaged in the operation of owned hotel properties. The franchise and management segment is engaged in various license, franchise and management agreements relating to its owned and franchised hotels. As of December 31, 2016, its portfolio consisted of 888 hotels representing approximately 87,200 rooms located primarily across 48 states in the United States, as well as in Canada, Mexico, Honduras and Colombia, of which 322 hotels were owned and operated, and 566 were franchised. As of December 31, 2016, the Company had a pipeline of 248 franchised hotels in the United States, Mexico, Colombia, Nicaragua, Guatemala, Chile and El Salvador.

About Extended Stay America

Extended Stay America, Inc. is a owner/operator of company-branded hotels in North America. The Company operates in the extended stay lodging industry. The Company owns and operates approximately 700 hotel properties consisting of approximately 75,900 rooms located in 44 states across the United States of America and in Canada. The Company owns and operates hotels under the core brand, Extended Stay America. In addition, the Company owns and operates three Extended Stay Canada hotels, 49 hotels in the economy extended stay segment under the Crossland Economy Studios and Hometown Inn brands, and also manage two Extended Stay America hotels.

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