Choice Hotels International, Inc. (CHH Quick QuoteCHH - Free Report) is gaining from expansion efforts, increases in its business and group travel demand, and robust brand recognition. However, inflationary pressures are concerns.

The Zacks Rank #3 (Hold) company has an impressive long-term earnings growth rate of 13.2%. CHH’s earnings and sales in 2023 are likely to witness growth of 13.3% and 10.5% year over year, respectively.

Growth Catalysts

Choice Hotels’ riveting growth potential depends on continual expansion of its brands. The company’s portfolio of well-segmented brands is getting evidently stronger. With continuous enhancement of the mid-scale brand, acquisition of WoodSpring brand, and transformation and advancement of Comfort and Cambria brands, Choice Hotels is poised for growth.

CHH relies heavily on expansion in domestic and international markets. As of March 31, its domestic and extended-stay domestic pipeline reached 925 hotels (approximately 89,000 rooms) and 475 hotels, up 11% and 28% on a year-over-year basis, respectively. Its global pipeline increased 14% compared with the prior-year quarter’s levels, representing 988 hotels (over 96,000 rooms).

In 2023, the newly introduced Everhome Suites extended-stay brand experienced a promising start, generating significant interest among developers with 62 ongoing projects. A notable milestone occurred last month with the commencement of construction for the fourth Everhome hotel. These developments signify the brand's growing momentum and success in the market. Given the solid appeal of this new product in the development community, management is optimistic in this regard and anticipates higher contracts moving into 2023.

Choice Hotels is benefiting from sequential improvements in its business travel demand, owing to increased extended vacations, household relocations and temporary remote-work assignments. The transition of leisure travel into mainstream business added to the positives. Backed by positive trends coupled with segment-specific tailwinds, management stated that RevPAR and adjusted EBITDA surpassed 2019 levels. CHH anticipates the momentum to continue on the back of investments in infrastructure and restoration of American manufacturing.

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Concerns

The stock has risen 1.1% in the past six months compared with the industry’s growth of 8.1%.

The hospitality industry is cyclical and worsening of global economic conditions might dent Choice Hotels’ revenues and profits. During first-quarter 2023, the company reported softness particularly in the economy chain scale. It believes that if inflation rates rise moderately, it will likely lead to comparable or even higher increases in hotel room rates.

Zacks Rank

Choice Hotels currently carries a Zacks Rank #3 (Hold).

Key Picks

Here we present some better-ranked stocks in the Zacks Consumer Discretionary sector.

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The Zacks Consensus Estimate for Trip.com Group’s 2023 sales and EPS suggests surges of 101.6% and 531%, respectively, from the year-ago period’s levels.

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The Zacks Consensus Estimate for OSW’s 2023 sales and EPS indicates rises of 33.9% and 89.3%, respectively, from the year-ago period’s levels.

Bluegreen Vacations Holding Corporation carries a Zacks Rank #2. BVH has a trailing four-quarter earnings surprise of 24.7%, on average. Shares of BVH have increased 55% in the past year.

The Zacks Consensus Estimate for BVH’s 2023 sales and EPS implies gains of 3.6% and 17.6%, respectively, from the year-ago period’s levels.