|Shares Out. (in M):||130||P/E||30.12||21.77|
|Market Cap (in $M):||1,935||P/FCF||7.75||7.29|
|Net Debt (in $M):||1,621||EBIT||190||217|
La Quinta Holdings (LQ) is likely to increase substantially in value in the near term, with a meaningful likelihood of a sale to a strategic buyer. I must immediately tip my hat to Sugar's January 14 VIC post on shorting the stock; s/he was very correct, and timely, and I was able to make money on the short side partly due to her/his work-- thank you. However, I think the pendulum has swung too far in that direction, and believe the opportunity with the stock is on the long side now.
Please read Sugar's post for more background on the company. This post will focus on why the present long opportunity exists, and possible event paths.
That leaves us where we are today. LQ is trading at $14.92, short interest is up to over 5% of the company, and everyone understands the situation with Texas/oil is bad.
I think Blackstone will try to put the company in play.
Blackstone still owns 27.1% of the company. (And Eminence just filed a 13G with 7.4%) It's clear from their prior sales that BX is looking to exit the company, and they've been very quiet since their last secondary in March. The long-time CEO has resigned, leaving a novice to run the company for the past two months. LQ is a rare publicly traded single brand hotel operator. The brand has not been diminished or negatively impacted in any way; it was previously over-earning on high rates in shale regions, and that will reset down, but it has the same growth prospect as before. The company should still easily do $200-250 MM in FCF next year, which is a 10-13% FCF yield. Yes, it's highly levered, but debt isn't due until 2021, and it still owns 40% of hotels, which could be sold or refranchised for debt paydown.
The purchase of LQ by any of the multi-brand hotel operators would be immediately accretive and would give BX a clean exit opportunity. (The fund does still own 45%+ of HLT.)
Additionally, even without a sale, I believe LQ is very punitively valued on earnings growth that is suffering a temporary setback and should be restored. 20x 2017's 85c ==> $17 should be a base case, and 25x ==> $21.25 (+43% upside) is my bull case.
LQ is sold to a multi-brand hotel operator. Or results stabilize with stable oil prices.