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Choice Hotels (CHH) Stock Outpaces Industry in a Year: Here's Why

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Choice Hotels International, Inc. (CHH - Free Report) is poised to benefit from expansion efforts, domestic franchise agreements and the Cambria hotel prototype. Also, sequential improvements in its business and group travel demand have driven sales in the last few quarters.

Shares of Choice Hotels have gained 8.4% in the past year against the industry’s fall of 1.4%. A solid earnings surprise history backed the price performance. Choice Hotels’ earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters. Earnings estimates for full-year 2022 and 2023 have moved up 2.3% and 2%, respectively, in the past 30 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy). This indicates robust fundamentals and expectations of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Growth Catalysts

Choice Hotels relies on expansion in both domestic and international markets. In first-quarter 2022, the company awarded 93 domestic franchise agreements, up 45% year over year. Coming to the extended-stay portfolio, the company witnessed rapid expansion, reaching 478 domestic hotels as of Mar 31, 2022. This marked an increase of 5.3% on a year-over-year basis. During first-quarter 2022, the company awarded 29 extended-stay domestic franchise agreements, reflecting growth of three times and two times, respectively, from 2021 and 2019 levels. As of Mar 31, the domestic extended-stay pipeline comprised 350 hotels awaiting conversion, under construction or approved for development. Relatively new to the midscale portfolio, Clarion Pointe — part of the popular Clarion brand — is experiencing great success. Clarion Point brand is resonating well with guests. Currently, the brand has 45 hotels open in the United States and 32 additional hotels awaiting conversion this year.

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The company focuses on franchising as it intends to facilitate ROE expansion and earnings growth in the long term. Emphasis on revenue management tools and enhancements to merchandising capabilities bodes well. As of Mar 31, 2022, the company had 864 franchised hotels with 77,769 rooms under construction, awaiting conversion or approval for development in its domestic system. During the first quarter, new applications for domestic franchise agreements increased 46% year over year. As of Mar 31, 2022, the company had 6,996 franchised hotels.

Apart from this, the company is emphasizing on the improvement of unit economics with the rollout of a new digital registration capability. The cost-effective cloud-based solution offers simplification in the hotel’s registration process (for front desk staff), savings on labor, speed up check-ins as well as improvement in the overall guest experience. The company unveiled a new Cambria hotel prototype, specifically designed for secondary and leisure markets. The prototype allows the developers the flexibility to build hotels at a reduced cost along with design retention. Given the solid response from the developer community, the company remains optimistic in this regard and intends to open additional hotels to fuel the revenue intensity of its system. During the first quarter 2022, the company signed 10 new prototype agreements.

Choice Hotels is benefiting from sequential improvements in its business and group travel demand owing to a rise in extended vacations, household relocations and temporary remote work assignments. The transition of leisure travel into mainstream business added to the positives. Backed by the positive trends coupled with the segment-specific tailwinds, the company stated that RevPAR and adjusted EBITDA had surpassed 2019 levels.Going forward, the company anticipates the momentum to continue on the back of investments in infrastructure build and onshoring of the U.S. supply chain.

Other Key Picks

Some other top-ranked stocks in the Zacks Consumer Discretionary sector are Civeo Corporation (CVEO - Free Report) , Bluegreen Vacations Holding Corporation (BVH - Free Report) and Funko, Inc. (FNKO - Free Report) .

Civeo sports a Zacks Rank #1 at present. The company has a trailing four-quarter earnings surprise of 1,565.1%, on average. Shares of the company have increased 61.7% in the past year.

The Zacks Consensus Estimate for CVEO’s 2022 sales and earnings per share (EPS) suggests growth of 12.5% and 1,450%, respectively, from the year-ago period’s levels.

Bluegreen Vacations sports a Zacks Rank #1. BVH has a trailing four-quarter earnings surprise of 85.9%, on average. The stock has increased 27.5% in the past year.

The Zacks Consensus Estimate for BVH’s current financial year sales and EPS indicates growth of 11.2% and 35.1%, respectively, from the year-ago period’s reported levels.

Funko sports a Zacks Rank #1. FNKO has a trailing four-quarter earnings surprise of 78.7%, on average. Shares of the company have declined 21.2% in the past year.

The Zacks Consensus Estimate for Funko’s current financial year sales and EPS suggests growth of 26.8% and 31%, respectively, from the year-ago period’s reported levels.