We expect Texas-based hotelier, La Quinta Holdings Inc. LQ, to beat expectations when it reports first-quarter 2015 results on Apr 29, after the market closes. Last quarter, the company posted a positive earnings surprise of 60.00%. Let us see what is in store for the company this quarter.
Why a Likely Positive Surprise?
Our proven model shows that La Quinta is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +14.29%. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: La Quinta has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of La Quinta’s Zacks Rank #3 and +14.29% ESP makes us confident of an earnings beat.
What's Driving the Better-than-Expected Earnings?
La Quinta operates primarily in the U.S. with almost 95% of its rooms located in the domestic market. The company began trading on NYSE in Apr 2014, and since then its revenues have surpassed the Zacks Consensus Estimate. The company’s revenues should beat expectations in the first quarter as well backed by an improving U.S. economy, lower gasoline and fuel prices, and improvement in consumer spending.
La Quinta has seen strong U.S. revenue per available room (RevPAR) in the last three quarters and we expect the trend to continue in the to-be-reported quarter as well. The company’s geographic exposure in the U.S. as well as the rising demand for mid-market hotels will continue to be the major RevPAR drivers.
La Quinta's first-quarter margins are expected to benefit from management’s focus on cutting costs, boosting profitability and maximizing efficiencies. In fact, its company-owned locations boast operating margins of 50%, which should improve in the quarter under review, due to the cost saving initiatives.
However, we are concerned about the company’s lack of exposure in the highly growing emerging markets, and elevated marketing expenses, which might keep earnings under pressure.
Other Stocks to Consider
Here are some other companies in the hotel/leisure sector which you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Marriott International, Inc. MAR, with an Earnings ESP of +2.86% and a Zacks Rank #3.
Intrawest Resorts Holdings, Inc. SNOW, with an Earnings ESP of +2.17% and a Zacks Rank #2 (Buy).
Live Nation Entertainment, Inc. LYV, with an Earnings ESP of +22.22% and a Zacks Rank #2.
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