Choice Hotels (CHH) shares are down 28% year-to-date: Is the worst over?

Shares of Choice Hotels International, Inc. (CHH Free Report) have declined 27.5% over the past six months, compared to a 13.8% decline in the industry. The decline can mainly be attributed to the coronavirus pandemic.

Although the company’s shares have declined over the past six months, the stock is expected to reverse due to improvements in RevPAR, expansion strategies, improved mid-range branding and growth. transformation and advancement of the Comfort brands. This Zacks No. 2 (buy) ranked company has an impressive long-term earnings growth rate of 12.9%. Let’s go deeper.

Growth engines

Choice Hotels relies heavily on expanding into domestic and international markets. In the second quarter of 2022, the company entered into 122 domestic franchise agreements (representing 10,787 rooms) compared to 111 franchise agreements reported in the prior year quarter. The company reported sequential increases in its business and group travel demand, driven by an increase in extended vacations, household moves and temporary remote work assignments. The shift from leisure travel to mainstream business added to the positives. Supported by positive trends and segment-specific tailwinds, the company said RevPAR and Adjusted EBITDA exceeded 2019 levels. The company expects the momentum to continue through investments in building infrastructure and the relocation of the American supply chain.

In terms of the extended stay portfolio, the company has seen rapid expansion, reaching 489 hotels nationwide as of June 30, 2022. This highlighted an increase of 6.3% on an annual basis. During the second quarter of 2022, the company entered into 41 national extended stay franchise agreements, reflecting growth of 24% and 78%, respectively, over 2021 and 2019 levels. Along with its national growth, the company continues to expand its international footprint in new countries. The main international operating markets are Spain, Colombia, the Caribbean and Canada. Relatively new to the mid-range portfolio, Clarion Pointe — part of the well-known Clarion brand — is enjoying great success. The Clarion Point brand resonates well with customers. The brand has 50 hotels open in the United States and 10 additional hotels awaiting conversion this year.

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Choice Hotels’ Cambria portfolio is doing great business. Cambria significantly outperformed premium soft brands (as well as the segment as a whole) in terms of year-over-year RevPAR change. The brand has been well received due to the smart conversion opportunities. During the second quarter of 2022, the company inaugurated 21 Cambria projects, bringing the total number of units to 60. Additionally, it said it has 65 additional domestic properties in the pipeline. Building on strong consumer confidence and the attractiveness of Choice Hotels’ value proposition, the company plans to increase the revenue intensity of its system by adding more properties. In 2022, the company plans to open 10 additional Cambria hotels.

Additionally, on June 12, 2022, the company entered into a definitive agreement to acquire Radisson Hospitality for approximately $675 million. The transaction includes the integration of more than 67,000 Radisson Hotels Americas rooms into the company’s portfolio, paving the way for a 12% growth in the number of rooms worldwide. Additionally, the initiative allows the company to expand its presence in Canadian, Mexican, Caribbean and other key markets in the Americas. Given the growth prospects in terms of high-end penetration and value creation efforts, the company remains optimistic in this regard.

Other Key Choices

Some other top-ranked stocks in the Zacks Consumer Discretionary sector are Marriott Vacations Worldwide Corporation (VCA free report), Marriott International, Inc. (TUE free report) and Hyatt Hotels Corporation (H free report).

Marriott Vacations currently sports a Zacks #1 (Strong Buy) rating. VAC has a trailing four-quarter earnings surprise of 13.9%, on average. The stock is down 8.2% over the past year. You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks consensus estimate for ACC’s current fiscal year sales and EPS indicates an increase of 19.7% and 131.4%, respectively, over reported levels for the time of year former.

Marriott wears a Zacks Rank #2, at present. MAR has an earnings surprise for the last four quarters of 18.6% on average. The stock is up 13.9% over the past year.

Zacks consensus estimate for MAR’s current year sales and EPS indicate growth of 46.7% and 102.8%, respectively, over reported levels in the prior year period .

Hyatt Hotels currently carries a No. 2 Zacks rank. H has a trailing four-quarter earnings surprise of 11.2% on average. The stock has gained 26.2% over the past year.

Zacks consensus estimate for H’s current year sales and EPS indicates growth of 21.9% and 21.7%, respectively, over reported levels in the prior year period .

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