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Choice Hotels (CHH) Boosts MainStay Hotel Line-up in US

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To strengthen its portfolio in the midscale extended stay segment, Choice Hotels International, Inc. (CHH - Free Report) recently entered into a franchise agreement with Gulf Coast Hotel Management, Inc. to convert 15 MainStay hotels across the United States.

With a total of approximately 1,700 rooms, the hotels are likely to cover the following cities, namely — Centennial (Colorado), Meriden (Connecticut), Altamonte Springs (Florida), Hoffman Estates (Illinois), Schaumburg (Illinois), Wheeling (Illinois), Louisville (Kentucky), Auburn Hills (Michigan), Farmington Hills (Michigan), Omaha (Nebraska), Charlotte (North Carolina), Greensboro (North Carolina), Raleigh (North Carolina), Blue Ash (Ohio) and Salt Lake City (Utah).

Moreover, features such as apartment-style suites and amenities such as fitness rooms, on-site marketplaces and guest laundry facilities are provided.

Ron Burgett, senior vice president, franchise development, extended stay, Choice Hotels, stated, “The addition of these 15 hotels increases our domestic MainStay Suites room count by over 35% and greatly improves the brand's position in the midscale extended stay segment.”

Franchise Business to Drive Growth

Choice Hotels gains from economies of scale associated with the franchise business. Accordingly, higher fee from franchisees and transference of cost burden to franchises provide the company with operational advantages. Apart from royalty fees and procurement services revenues, Choice Hotels also collects marketing and reservation system fees to support activities for the franchise system.

As of Sep 30, 2020, the company had 945 franchised hotels, with 76,115 rooms under construction, awaiting approval for development in its domestic system compared with 975 hotels and 82,390 rooms at Sep 30, 2019. The number of new construction franchised hotels in the company's domestic pipeline declined 4% to 710 on Sep 30, 2020, from 741 on Sep 30, 2019. However, the number of conversion franchised hotels in its domestic pipeline increased by one hotel to 235 hotels as on Sep 30, 2020, from 234 hotels reported in the prior-year quarter.

Price Performance

Coming to price performance, shares of Choice Hotels have gained 27.1% in the past six months compared with the industry’s 34.5% growth. Notably, temporary closures, "shelter in place" orders, travel restrictions, cancellation of events, conferences and meetings, social-distancing measures as well as other governmental regulations had negatively impacted the company’s operations.

Nonetheless, continual expansion strategies as well as enhancement of the mid-scale brand along with the transformation and advancement of the Comfort brands are likely to help the company going forward. Also, earnings estimates for 2021 have moved up in the past 60 days, depicting analysts’ optimism regarding the stock’s growth potential.

Zacks Rank & Key Picks

Choice Hotels currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Zacks Consumer Discretionary sector are Acushnet Holdings Corp. (GOLF - Free Report) , YETI Holdings, Inc. (YETI - Free Report) and Vista Outdoor Inc. (VSTO - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Acushnet has a trailing four-quarter earnings surprise of 12.9%, on average.

YETI Holdings has a three-five year earnings per share growth rate of 18.3%.

2021 earnings for Vista Outdoor are expected to surge 1,033.3%.

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