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Here's Why You Should Add Choice Hotels to Your Portfolio
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Choice Hotels International, Inc. (CHH - Free Report) is one of the largest hotel franchisors in the world with more than 6,900 hotels across 40 countries. With a Zacks Rank #2 (Buy) and a Growth Score of A, Choice Hotels is a promising investment bet right now. This is because back-tested results show that companies with a decent growth score and rank handily outperform others.
Shares of Choice Hotels have gained 4.1% in the past year against the industry’s decline of 19.1%. Moreover, upward revision in earnings estimates for 2018 reflects analysts’ optimism surrounding the company’s earnings potential. Over the past month, earnings estimates for the year have inched up 1.1%.
Let’s delve deeper and try to determine the factors driving growth for the company.
Continual Expansion & Strong Brand Presence Hold Key
Choice Hotels relies heavily on expansion in domestic as well as international markets. Apart from constant franchise expansion, the company recently added 239 new extended-stay hotels in 35 states through the acquisition of Woodspring Suites. Furthermore, the company announced plans to develop a Cambria Hotel in Georgia to expand brand presence.
Also, the company focuses on the continual expansion of brands to drive revenue growth. In fact, its portfolio of well-segmented brands is getting stronger. Thus, continuous enhancement of the mid-scale brand, the WoodSpring brand acquisition as well as transformation and advancement of the Comfort and Cambria brands are likely to have driven growth so far in 2018.
Franchise Business Model to Boost Earnings
Choice Hotels generates 99% of the total revenues from its franchise business and gains from economies of scale. Accordingly, higher fee from franchisees and transfer of cost burden onto franchises provide the company with operational advantage. Apart from royalty fees and procurement services revenues, Choice Hotels collects marketing and reservation system fees to provide support activities for franchise systems. Thus, we expect franchising to facilitate earnings growth over the long term. Meanwhile, the Zacks Consensus Estimate calls for current-year earnings growth of 31.9% for the company.
We believe that management’s solid commitment toward franchisee profitability is driving incremental revenues. Hotel franchising revenues improved 10% in the first nine months of 2018. The Zacks Consensus Estimate for 2018 revenues is pegged at $1.10 billion, reflecting an 8.8% increase from last year.
Rewarding Shareholders
The company has a historical record of returning value to shareholders through stock repurchases and dividends. By the end of the third quarter of 2018, Choice Hotels paid cash dividends of nearly $37 million. Based on the current quarterly dividend rate of 21.5 cents per share of common stock, the company expects to pay dividends worth approximately $49 million in 2018. Meanwhile, management repurchased roughly $109 million shares of common stock under its share repurchase program during the first nine months of 2018.Currently, the company’s dividend yield stands at 1.1%, higher than the industry’s yield of 0.83%.
Higher Net Margin
Net profit margin is a true indicator of profits for hospitality companies as it takes into account cost of operations which is not reflected in gross margin. Choice Hotels has a trailing 12-month net margin of 10.9%, which is higher than the industry average of 8.7%.
Belmond has an expected current-year earnings growth rate of 150%.
Peak Resorts has an expected 2019 earnings growth rate of 342.9%.
Glu Mobile has an expected current-year earnings growth rate of 159.1%.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Here's Why You Should Add Choice Hotels to Your Portfolio
Choice Hotels International, Inc. (CHH - Free Report) is one of the largest hotel franchisors in the world with more than 6,900 hotels across 40 countries. With a Zacks Rank #2 (Buy) and a Growth Score of A, Choice Hotels is a promising investment bet right now. This is because back-tested results show that companies with a decent growth score and rank handily outperform others.
Shares of Choice Hotels have gained 4.1% in the past year against the industry’s decline of 19.1%. Moreover, upward revision in earnings estimates for 2018 reflects analysts’ optimism surrounding the company’s earnings potential. Over the past month, earnings estimates for the year have inched up 1.1%.
Let’s delve deeper and try to determine the factors driving growth for the company.
Continual Expansion & Strong Brand Presence Hold Key
Choice Hotels relies heavily on expansion in domestic as well as international markets. Apart from constant franchise expansion, the company recently added 239 new extended-stay hotels in 35 states through the acquisition of Woodspring Suites. Furthermore, the company announced plans to develop a Cambria Hotel in Georgia to expand brand presence.
Also, the company focuses on the continual expansion of brands to drive revenue growth. In fact, its portfolio of well-segmented brands is getting stronger. Thus, continuous enhancement of the mid-scale brand, the WoodSpring brand acquisition as well as transformation and advancement of the Comfort and Cambria brands are likely to have driven growth so far in 2018.
Franchise Business Model to Boost Earnings
Choice Hotels generates 99% of the total revenues from its franchise business and gains from economies of scale. Accordingly, higher fee from franchisees and transfer of cost burden onto franchises provide the company with operational advantage. Apart from royalty fees and procurement services revenues, Choice Hotels collects marketing and reservation system fees to provide support activities for franchise systems. Thus, we expect franchising to facilitate earnings growth over the long term. Meanwhile, the Zacks Consensus Estimate calls for current-year earnings growth of 31.9% for the company.
We believe that management’s solid commitment toward franchisee profitability is driving incremental revenues. Hotel franchising revenues improved 10% in the first nine months of 2018. The Zacks Consensus Estimate for 2018 revenues is pegged at $1.10 billion, reflecting an 8.8% increase from last year.
Rewarding Shareholders
The company has a historical record of returning value to shareholders through stock repurchases and dividends. By the end of the third quarter of 2018, Choice Hotels paid cash dividends of nearly $37 million. Based on the current quarterly dividend rate of 21.5 cents per share of common stock, the company expects to pay dividends worth approximately $49 million in 2018. Meanwhile, management repurchased roughly $109 million shares of common stock under its share repurchase program during the first nine months of 2018.Currently, the company’s dividend yield stands at 1.1%, higher than the industry’s yield of 0.83%.
Higher Net Margin
Net profit margin is a true indicator of profits for hospitality companies as it takes into account cost of operations which is not reflected in gross margin. Choice Hotels has a trailing 12-month net margin of 10.9%, which is higher than the industry average of 8.7%.
Other Stocks to Consider
A few other top-ranked stocks in the Consumer-Discretionary sector are Belmond Ltd. , Peak Resorts, Inc. with a Zacks Rank #1 (Strong Buy), and Glu Mobile Inc. with a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Belmond has an expected current-year earnings growth rate of 150%.
Peak Resorts has an expected 2019 earnings growth rate of 342.9%.
Glu Mobile has an expected current-year earnings growth rate of 159.1%.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>