A month has gone by since the last earnings report for Choice Hotels (CHH). Shares have lost about 3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Choice Hotels due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Choice Hotels Q1 Earnings & Revenues Beat Estimates
Choice Hotels International, Inc. delivered impressive first-quarter 2023 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis.
Patrick Pacious, president and CEO of Choice Hotels, stated, "Building on our record 2022 earnings results, our distinct growth strategy and best-in-class franchising business engine drove first quarter performance to new levels, with adjusted EBITDA increasing by 10% year-over-year. At the same time, we are ahead of plan integrating the Radisson Hotels Americas business unit, which we expect will further accelerate our transformative growth."
Q1 Earnings and Revenues
In the quarter under review, Choice Hotels reported adjusted earnings per share (EPS) of $1.12, surpassing the Zacks Consensus Estimate of $1.08. In the prior-year quarter, the company reported an adjusted EPS of $1.03.
Quarterly revenues of $332.8 million surpassed the consensus mark of $316 million by 4.9%. The metric rose 29.1% from the year-ago quarter’s level.
Franchising & Royalties
During the first quarter, domestic royalty fees increased 18% year over year to $107.5 million. Domestic revenues per available room (RevPAR) increased 5.9% from first-quarter 2022 levels. The uptick was driven by a 5.2% increase in the average daily rate. During the quarter, effective royalty rate increased 6 basis points year over year to 4.99%.
During the first quarter of 2023, domestic franchise agreements awarded for the company's upscale segment increased 13% year over year. As of Mar 31, 2023, the number of domestic pipelines increased 11% year over year to 925 hotels.
Total operating expenses during first-quarter 2023 increased 61% year over year to $254.9 million. During the quarter, adjusted EBITDA rose 10.1% year over year to $106.5 million.
As of Mar 31, 2023, Choice Hotels had cash and cash equivalents of $31.7 million compared with $41.6 million as of Dec 31, 2022.
Long-term debt at the end of the first quarter was $1,374.8 million compared with $1,200.5 million reported in the previous quarter.
During the first quarter, Goodwill (as a percentage of total assets) came in at 10.5% compared with 10.4% in fourth-quarter 2022 end.
In 2023, the company anticipates adjusted net income in the range of $292-$302 million. Adjusted EBITDA is expected to be between $525 million and $540 million, up from the previous expectation of $520-$540 million. The company expects adjusted EPS to be between $5.70 and $5.90.
Domestic RevPAR growth in 2023 is estimated at approximately 2% compared with 2022. In 2023, the company’s domestic effective royalty rate is anticipated to increase in the mid-single digits compared with 2022 levels.
The domestic extended-stay pipeline reached 475 hotels as of Mar 31, 2022. At the end of first-quarter 2022, the number of domestic hotels and rooms increased 6.5% and 8.2%, respectively, year over year.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
Currently, Choice Hotels has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Choice Hotels has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Choice Hotels belongs to the Zacks Hotels and Motels industry. Another stock from the same industry, Hilton Worldwide Holdings Inc. (HLT), has gained 0.2% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
Hilton Worldwide Holdings Inc. reported revenues of $2.29 billion in the last reported quarter, representing a year-over-year change of +33.2%. EPS of $1.24 for the same period compares with $0.71 a year ago.
Hilton Worldwide Holdings Inc. is expected to post earnings of $1.58 per share for the current quarter, representing a year-over-year change of +22.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.4%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Hilton Worldwide Holdings Inc. Also, the stock has a VGM Score of B.
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