Sunday, December 22 will conclude the 40 day SEC-enforced quiet period on underwriter research directly following the November 12 IPO of ESH Hospitality (NYSE:STAY), which will likely lead to a brief rise in the price of STAY as underwriters release positive information about the firm.
After pricing within its expected range of $18-$21 at $20 per share, the firm saw a first-day return of 19.4%, and has since closed fairly consistently between $22 and $24, though recent days have seen an uptick in price as high as $25.21; the stock closed at $24.27 per share on December 12th. See our prior article at-
STAY's underwriters, including Deutsche Bank Securities, Goldman Sachs & Co, Houlihan Lokey Capital, JP Morgan Securities LLC, Blackstone Advisory Partners LP, Morgan Stanley & Co LLC, BofA Merrill Lynch, Barclays Capital, Citigroup Global Markets Inc, Macquarie Capital, Robert W. Baird , and Stifel Nicolaus, will attempt to take advantage of the upward trend with a massive release of positive research reports.
Both our own research over the past two years and the results of recent academic studies have provided empirical evidence of a correlation between the number and quality of IPO underwriters and a rise in the price of a firm's stock towards the end of its quiet period-meaning that STAY's lengthy roster of underwriters could play in its favor as December 22 approaches.
The increase in price generally begins a few days before underwriter research can be released, as well-versed investors realize that the underwriters have no incentive to release anything but positive information about the firm that they just underwrote, and begin to buy up shares in advance of the quiet period expiration. These purchases create the perception of demand before the actual expiration, and place upward pressure on the price of the firm's shares.
STAY is the largest North American owner/operator of company-branded hotels, with a total of 682 hotel properties spread across the United States and Canada. The firm's flagship Extended Stay America brand accounts for 630 of these hotels, which target the mid-price extended stay hotel segment-Extended Stay America-branded hotels make up over 50% of this segment.
STAY owns and operates an additional three hotels under a similar model under the Extended Stay Canada brand and 49 economy extended stay hotels branded as Hometown Inn and Crossland Economy Studios. The hotels have a diverse client base, including prospective home buyers, travelers, professionals in the field; these clients generally rent rooms for periods of at least a week. The firm's 2012 overall occupancy rate of 73.3% beat the national average by over 10%.
STAY must compete with other extended-stay hotel companies in the United States in Canada, along with traditional hotel companies. Its competitors include Super 8 Worldwide, InterContinental Hotels Group (NYSE:IHG), Hilton Worldwide (NYSE:HLT), Best Western International, and Marriott International (NASDAQ:MAR). Additionally, the firm competes with online booking firms such as Travelocity.com, Priceline.com (NASDAQ:PCLN), and Expedia.com (NASDAQ:EXPE).
James L. Donald joined STAY as CEO in 2012, after an impressive career including over 35 years' experience in multiple-unit consumer-facing and brand-based industries, including time as the president and CEO of Starbucks. CFO Peter J. Crage previously acted as the CFO of Cedar Fair Entertainment Company, and has more than 20 years of experience in the leisure industry. CMO Thomas Seddon has more than 20 years of experience in hospitality, including time as the CMO of InterContinental Hotels Group.
STAY's quiet positive performance since going public is likely to continue upwards in the period leading up to the end of the quiet period, and we expect a price bump. This may present a long trading opportunity for aggressive investors.
STAY is a dominant player in the North American hotel industry, and we believe that its recent investments in improving its facilities--$455.1 million out of a $626.4 million capital program have been spent thus far-coupled with its high quality, mostly coastal locations will allow it to maintain that position for years to come. The firm's impressive management team should be more than capable of handling its increasing revenue figures and shepherding the firm to greater income (STAY posted revenues of $550,393,000 and an income of $51,456,000 for the six months ended June 30, 2013).
Disclosure: I am long STAY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.