) to hold from buy.
Analyst Keith Mills says his downgrade was based on valuation. He says the hotel operator is trading at 9.9 times his $259 million 2003 earnings before interest, taxes, depreciation, and amortization estimate, compared with the 8.9 historical average. He says the company's biggest risk is its weak EBITDA, which is due to low revenue per available room. The company runs 438 extended-stay hotels in 41 states.
Mills cut his $55.1 million fourth quarter EBITDA estimate to $53.7 million as business weakened sequentially. He expects the company to incur costs from testing, litigation, and repairs related to an exterior insulation finish system problem, but he's unsure of the amount. Mills trimmed his 58 cents 2002 earnings per share estimate to 57 cents. He raised his 56 cents 2003 earnings per share estimate to 60 cents as the previous estimate is too conservative. Mills also lifted his $14.50 target to $15.75.