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Why Is Choice Hotels (CHH) Down 3.1% Since Last Earnings Report?
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It has been about a month since the last earnings report for Choice Hotels (CHH - Free Report) . Shares have lost about 3.1% 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 Beats on Q2 Earnings Estimates, Raises View
Choice Hotels delivered impressive second-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. The upside was primarily driven by synergies through the Radisson Hotels Americas integration (ahead of schedule) and momentum in the conversion projects pipeline.
Q2 Earnings and Revenues
In the quarter under review, Choice Hotels reported adjusted earnings per share (EPS) of $1.75, surpassing the Zacks Consensus Estimate of $1.70. The company reported an adjusted EPS of $1.43 in the prior-year quarter.
Quarterly revenues of $427.4 million surpassed the consensus mark of $423 million by 1.2%. The metric rose 16.2% from the year-ago quarter’s level.
Franchising & Royalties
During the second quarter, domestic royalties increased 7% year over year to $125.1 million.
During the quarter, domestic revenues per available room (RevPAR) came in at $60.32 compared with $60.04 reported in the prior year period. The upside was driven by a 2.8% rise in the average daily rate.
During the quarter, the effective royalty rate increased 6 basis points year over year to 4.99%.
Operating Results
Total operating expenses during second-quarter 2023 increased 42% year over year to $303 million.
During the quarter, adjusted EBITDA rose 18.2% year over year to $153.1 million.
Balance Sheet
As of Jun 30, 2023, Choice Hotels had cash and cash equivalents of $36.2 million compared with $31.7 million as of Mar 31, 2023.
Long-term debt at the end of the second quarter was $1,384.3 million compared with $1,374.8 million reported in the previous quarter.
During the second quarter, Goodwill (as a percentage of total assets) came in at 10.5% (almost flat sequentially).
Outlook
In 2023, the company anticipates adjusted net income in the range of $298-$306 million, up from the previous expectation of $292-$302 million. Adjusted EBITDA is expected to be between $530 million and $540 million, up from the previous expectation of $525-$540 million. The company expects adjusted EPS to be between $5.86 and $6.01 compared with the prior expectations of $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 on a year-over-year basis.
Other Updates
The domestic extended-stay pipeline reached 450 hotels as of Jun 30, 2023. At the end of second-quarter 2023, the number of domestic hotels and rooms increased 6.9% and 8.8%, respectively, year over year. The company’s pipeline for conversion hotels rose 14% year over year.
As of Jun 30, 2023, domestic pipelines increased 9% year over year to 899 hotels. The company’s international pipeline rose 29% year over year to 61 hotels.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
At this time, Choice Hotels has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Choice Hotels has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Choice Hotels (CHH) Down 3.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Choice Hotels (CHH - Free Report) . Shares have lost about 3.1% 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 Beats on Q2 Earnings Estimates, Raises View
Choice Hotels delivered impressive second-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. The upside was primarily driven by synergies through the Radisson Hotels Americas integration (ahead of schedule) and momentum in the conversion projects pipeline.
Q2 Earnings and Revenues
In the quarter under review, Choice Hotels reported adjusted earnings per share (EPS) of $1.75, surpassing the Zacks Consensus Estimate of $1.70. The company reported an adjusted EPS of $1.43 in the prior-year quarter.
Quarterly revenues of $427.4 million surpassed the consensus mark of $423 million by 1.2%. The metric rose 16.2% from the year-ago quarter’s level.
Franchising & Royalties
During the second quarter, domestic royalties increased 7% year over year to $125.1 million.
During the quarter, domestic revenues per available room (RevPAR) came in at $60.32 compared with $60.04 reported in the prior year period. The upside was driven by a 2.8% rise in the average daily rate.
During the quarter, the effective royalty rate increased 6 basis points year over year to 4.99%.
Operating Results
Total operating expenses during second-quarter 2023 increased 42% year over year to $303 million.
During the quarter, adjusted EBITDA rose 18.2% year over year to $153.1 million.
Balance Sheet
As of Jun 30, 2023, Choice Hotels had cash and cash equivalents of $36.2 million compared with $31.7 million as of Mar 31, 2023.
Long-term debt at the end of the second quarter was $1,384.3 million compared with $1,374.8 million reported in the previous quarter.
During the second quarter, Goodwill (as a percentage of total assets) came in at 10.5% (almost flat sequentially).
Outlook
In 2023, the company anticipates adjusted net income in the range of $298-$306 million, up from the previous expectation of $292-$302 million. Adjusted EBITDA is expected to be between $530 million and $540 million, up from the previous expectation of $525-$540 million. The company expects adjusted EPS to be between $5.86 and $6.01 compared with the prior expectations of $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 on a year-over-year basis.
Other Updates
The domestic extended-stay pipeline reached 450 hotels as of Jun 30, 2023. At the end of second-quarter 2023, the number of domestic hotels and rooms increased 6.9% and 8.8%, respectively, year over year. The company’s pipeline for conversion hotels rose 14% year over year.
As of Jun 30, 2023, domestic pipelines increased 9% year over year to 899 hotels. The company’s international pipeline rose 29% year over year to 61 hotels.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
At this time, Choice Hotels has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Choice Hotels has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.