Yahoo Finance Here's Why You Should Retain Choice Hotels' (CHH) Stock
Choice Hotels International, Inc. CHH is likely to benefit from strong business travel demand, franchise business and expansion efforts Also, focus on Radisson Hotels Acquisition bode well. However, inflationary pressures are a concern.
CHH reported impressive first-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate by 3.7% and 4.9%, respectively. Also, the top and the bottom line increased year over year by 29.1% and 8.7%, respectively. The upside was backed by a 5.9% increase in Domestic RevPAR, driven by an increase in ADR of 5.2% and a 34 bps increase in occupancy levels.
Shares of CHH have increased 3.6% in the year-to-date period compared with the Zacks Hotels and Motels industry’s rise of 9%. Earnings estimates for 2023 have moved north to $6.03 per share from $5.88 per share in the past 30 days. This depicts analysts' optimism over the company’s growth prospects.
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Growth Drivers
Choice Hotels is benefiting from sequential improvements in its business travel demand, owing to increased extended vacations, household relocations and temporary remote-work assignments. The transition of leisure travel into mainstream business added to the positives. Backed by the positive trends coupled with the segment-specific tailwinds, the company stated that RevPAR and adjusted EBITDA surpassed 2019 levels. The company anticipates the momentum to continue on the back of investments in infrastructure and restoration of American manufacturing.
In first-quarter 2023, the domestic Upscale franchise business witnessed a robust growth, with a 29% increase in units and a 13% rise in franchise agreements from the prior-year quarter’s levels. The domestic Upscale pipeline increased 16% on year-over-year basis, marking over 120 hotels.
As of Mar 31, the company's domestic and extended-stay domestic pipeline reached 925 hotels (approximately 89,000 rooms) and 475 hotels, up 11% and 28% on a year-over-year basis, respectively. The company's global pipeline increased 14% compared with the prior year-quarter, representing 988 hotels (over 96,000 rooms).
The company’s Ascend brand recently announced agreements to support its coast-to-coast expansion in the United States. This property signings include Mayfair Hotel in New York; CityFlats Hotel properties in Grand Rapids and Port Huron, Michigan; and an 84-room property in Ellicottville, New York. The company also signed agreements for multiple locations in California including San Francisco and Livermore
Emphasis on the Radisson Hotels acquisition bodes well. During the first quarter of 2023, Radisson Americas brands experienced a significant boost in business travel bookings, up 9% year-over-year. Additionally, the portfolio-wide RevPAR saw a robust growth of 11.2% compared to the previous year. The acquisition of Radisson Americas is seen as a strategic move to leverage the company's momentum in the Upscale segment. It is anticipated to accelerate the growth of the Cambria and Ascend brands, while expanding the Radisson portfolio.
Concerns
The hospitality industry is cyclical and worsening of global economic conditions might dent Choice Hotels’ revenues and profits. During the first quarter 2023, the company reported softness particularly in the economy chain scale. The company believes that if inflation rates rise moderately, it will likely lead to comparable or even higher increases in hotel room rates. The company is monitoring future inflation trends and assessing any potential impacts.
Zacks Rank & Other Key Picks
Choice Hotels International currently sports a Zacks Rank #3 (Hold).
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