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Choice Hotels (CHH) Up 16.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Choice Hotels (CHH - Free Report) . Shares have added about 16.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Choice Hotels due for a pullback? 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 catalysts.

Choice Hotels Q2 Earnings Miss, Revenues Top Estimates

Choice Hotels reported second-quarter 2020 results, wherein earnings missed the Zacks Consensus Estimate but revenues beat the same. Meanwhile, earnings and revenues declined from the year-ago level due to the coronavirus pandemic.

Nonetheless, Patrick Pacious — president and chief executive officer of Choice Hotels — said, "We believe that our predominantly leisure focus and strength in domestic drive-to markets will allow us to continue to outperform the overall industry during the recovery phase. We are optimistic that our long-term view, strong balance sheet, disciplined capital allocation strategy, proven brands and compelling franchisee value proposition will help us emerge from the crisis in a position of strength."

The lodging franchisor reported adjusted earnings of 13 cents per share, which missed the consensus mark of 28 cents by 53.6%. Also, the bottom line dropped 89% from the prior-year number.

For the quarter under review, total revenues came in at $151.7 million, down 52% year over year. Nonetheless, the figure topped the consensus mark of $149 million by 1.6%.

The coronavirus pandemic has been hurting demand and occupancy. Owing to the unprecedented nature of the crisis, the company has withdrawn its 2020 guidance. That said, it expects the impact of COVID-19 on business performance to be less significant in the third quarter than the second quarter due to continued weekly trend of travel demand growth, predominantly stemming from leisure transient guests driving to their destinations.

Franchising & Royalties

Domestic royalty fees totaled $48.3 million, down 52% year over year. Also, domestic system-wide RevPAR declined 49.6% year over year. Average daily rate was down 19.9% and occupancy was down to 39.1% from 62.1% in the prior-year quarter.

The company’s newly-executed domestic franchise agreements were 93 in the second quarter, down 49% year over year. As of Jun 30, 2020, the number of domestic hotels and rooms rose 0.6% and 2% year over year, respectively.

Operating Results

Total operating expenses decreased 32% from second-quarter 2019 to $142.6 million. Adjusted EBITDA declined 60% from the prior-year quarter to $41.1 million.

Balance Sheet

As of Jun 30, 2020, Choice Hotels had cash and cash equivalents of $314.1 million compared with $33.8 million on Dec 31, 2019.

Long-term debt at second quarter-end was $1,232.1 million, up from $844.1 million at 2019-end. Goodwill, as a percentage of total assets, was 9.4% at second quarter-end compared with 67.3% at 2019-end.

Meanwhile, it suspended the payout of future dividends for the remainder of 2020. As a result, total dividends paid for 2020 will be approximately $25 million.
    
Management repurchased roughly 7,000 shares for nearly $0.5 million under the share repurchase program during the second quarter. As of Jun 30, 2020, the company had 3.4 million shares remaining under the current share repurchase authorization.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

At this time, Choice Hotels has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Choice Hotels has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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