Home Inns Earnings Look Poised to Keep Growing

Home Inns & Hotels will release its quarterly report on Monday, and the Chinese chain of hotel properties has seen its stock drift downward over the past three years. But, even with general economic weakness, it looks as though Home Inns' earnings could grow from current levels, potentially supporting a share-price rebound.

Home Inns gained an immense amount of popularity in the run-up after the financial crisis, as the Chinese economy took a leadership role in bringing the world into the next phase of global economic growth. Most investors seem to assume that the chain will do badly with Chinese growth starting to slow; but the big question is if once middle-class Chinese citizens gain the experience of travel, will they be willing to give it up? Let's take an early look at what's been happening with Home Inns & Hotels over the past quarter, and what we're likely to see in its quarterly report.

Stats on Home Inns & Hotels

Source: Yahoo! Finance, S&P Capital IQ.

How will Home Inns' earnings fare this quarter?
Analysts have had mixed views on Home Inns' earnings in recent months, cutting their June-quarter estimates by about 13%, but raising their full-year 2013 projections by more than 4%. The stock has managed to rise in the same timespan, climbing 11% since early May.

Most of the stock gains for Home Inns came after its first-quarter earnings report, in which the company reported a surprise adjusted profit. Sales rose almost 12% as the chain opened 91 new hotels during the quarter, boosting its total to more than 1,850. Occupancy rates rose by nearly three percentage points and, although revenue per available room declined slightly, it nevertheless held up well in light of tough economic conditions domestically within China. Moreover, Home Inns kept its revenue guidance stable for the rest of the year, estimating growth of 14% to 18% in sales.

But Home Inns faces some headwinds, as the budget-hotel business has gotten intensely competitive. Between privately held 7 Days Group, and China Lodging. Home Inns is fighting for its share of a rapidly growing market that could soon hit the saturation point. As a result, investors have started to scale up their expectations for Chinese travel, focusing more on the luxury end of the market. For instance, private equity firm Carlyle Group bought a stake in upscale Mandarin Hotel Holdings last year, while Starwood Hotels, Ritz-Carlton, and Hilton have all brought their own brands into the emerging-market nation rather than affiliating with local luxury brands.

Still, what's uncertain is the extent to which Chinese consumers will keep taking advantage of travel opportunities, even in the face of the country's slowing economic growth. Reasonable-cost options could actually benefit from tough economic times if they drive would-be luxury travelers to economize with Home Inns locations.

In the Home Inns earnings report, watch for signs of how and where the hotel company is looking to expand next. As long as growth in China doesn't come to a complete standstill, there could remain lucrative opportunities for smart travel operators to take advantage of gradual improvement in the standard of living of middle-class Chinese consumers.

Another place where middle-class consumers could have a big impact in China is in the auto market, which is set to grow even bigger in coming years. A recent Motley Fool report, "2 Automakers to Buy for a Surging Chinese Market," names two global giants poised to reap big gains that could drive big rewards for investors. You can read this report right now for free -- just click here for instant access.

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The article Home Inns Earnings Look Poised to Keep Growing originally appeared on Fool.com.

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