Yahoo Finance Here's Why You Should Retain Choice Hotels' (CHH) Stock
Choice Hotels International, Inc. CHH is likely to benefit from improvements in business and group travel demand, expansion efforts and domestic franchise agreements. This and its focus on the Radisson Hotels acquisition bodes well. However, pandemic-induced disruptions and demand volatility are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Growth Catalysts
Choice Hotels is benefiting from sequential improvements in its business and group 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 had surpassed 2019 levels. The company anticipates the momentum to continue on the back of investments in infrastructure build and onshoring of the U.S. supply chain.
Choice Hotels relies on expansion in domestic and international markets. In third-quarter 2022, the company awarded 123 domestic franchise agreements (representing 10,551 rooms) compared with 89 franchising agreements reported in the prior-year quarter. During the quarter, demand for conversion hotels increased 42% year over year. Coming to the extended-stay portfolio, the company witnessed rapid expansion, reaching 468 domestic hotels as of Sep 30, 2022. This highlighted an increase of 45% on a year-over-year basis. During the third quarter of 2022, the company unveiled its first extended-stay hotel in Corona, California.
The company focuses on franchising to facilitate ROE expansion and earnings growth in the long term. Emphasis on revenue management tools and enhancements to merchandising capabilities bodes well. As of Sep 30, 2022, the company’s legacy Choice brands had 861 franchised hotels with 79,313 rooms under construction, awaiting conversion or approval for development in its domestic system. Year to date (through Sep 30, 2022), new applications for domestic franchise agreements increased 23% year over year.
Emphasis on the Radisson Hotels acquisition bodes well. On Aug 11, 2022, the company closed the acquisition of Radisson Hotels Americas. Quoted at $674 million, the transaction includes the integration of over 67,000 Radisson Hotels Americas rooms to the company’s portfolio. The integration will pave a path for 12% growth in global rooms number. The initiative allows the company to expand its presence in the Canadian, Mexican, Caribbean and other key Americas markets. During the third quarter of 2022, the addition of the Radisson upscale brands increased Choice's global footprint in the upscale segment to over 74,000 rooms. The Radisson Americas portfolio contributed $40.2 million in total revenues and $6.8 million in adjusted EBITDA. Given the growth prospects regarding penetration in the upscale market and value creation efforts, the company remains optimistic. The acquisition-backed enhancements related to the company’s long-term asset-light strategy (of growing its business in higher revenue travel segments and locations) and strengthening of Cambria’s growth prospects are likely to add to the positives.
Concerns
Image Source: Zacks Investment Research
Shares of Choice Hotels have declined 18.3% in the past year compared with the industry’s 8.7% fall. The coronavirus crisis continues to cause disruptions to the global economy and the hospitality industry. Reduced travel and demand for hotel rooms have affected the company for some time. Although the company commenced with the recovery process, we believe that the emergence of the new COVID-19 variant is likely to create volatility in demand. The company is cautious, as rising infections may trigger disruptions again.
Zacks Rank & Key Picks
Choice Hotels currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Consumer Discretionary sector are Hyatt Hotels Corporation H, Crocs, Inc. CROX and Boyd Gaming Corporation BYD.
Hyatt currently carries a Zacks Rank #1. H has a trailing four-quarter earnings surprise of 652.3%, on average. The stock has increased 14.2% in the past year.
The Zacks Consensus Estimate for H’s current financial year sales and EPS indicates a surge of 92.6% and 121.8%, respectively, from the year-ago period’s reported levels.
Crocs currently has a Zacks Rank #2 (Buy). CROX has a long-term earnings growth rate of 15%. Shares of Crocs have plunged 47.5% in the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS indicates a rise of 51.5% and 23.7%, respectively, from the year-ago period’s levels.
Boyd Gaming carries a Zacks Rank #2. BYD has a long-term earnings growth rate of 12.8%. The stock has declined 4.4% in the past year.
The Zacks Consensus Estimate for BYD’s 2022 sales and EPS indicates growth of 4.4% and 11.9%, respectively, from the year-ago period’s reported levels.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Hyatt Hotels Corporation (H) : Free Stock Analysis Report
Choice Hotels International, Inc. (CHH) : Free Stock Analysis Report
Boyd Gaming Corporation (BYD) : Free Stock Analysis Report
Crocs, Inc. (CROX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
