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Here's Why You Should Retain Choice Hotels' (CHH) Stock
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Choice Hotels International, Inc. (CHH - Free Report) is likely to benefit from synergies through the Radisson Hotels Americas integration and momentum in the conversion projects pipeline. Also, focus on continual expansion strategies through acquisitions and franchise agreements bodes well. However, increased expenses and an uncertain macroeconomic environment are a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Growth Catalysts
Choice Hotels is benefiting from the integration of Radisson Americas hotels. This initiative has paved the path toward an expanded loyalty program, extended co-brand credit card opportunity and increased footprint in the Americas region.
CHH has already surpassed its expectations, delivering adjusted EBITDA of $80 million through the integration of Radisson Hotels Americas. In July 2023, the company onboarded the nearly 600 Radisson Hotels Americas hotels onto its world-class reservation delivery engine and integrated the two award-winning loyalty programs. For 2024, the company expects adjusted EBITDA from Radisson Hotels Americas to exceed $80 million.
Choice Hotels relies on expansion to drive growth. As of Jun 30, 2023, the company's domestic and extended-stay domestic pipeline reached 899 hotels (approximately 87,000 rooms) and 450 hotels, up 9% and 17%, respectively. The Global pipeline increased 29% compared with the prior-year quarter’s levels, representing 61 hotels (over 6,300 rooms).
In 2023, the newly-introduced Everhome Suites extended stay brand experienced a promising start, generating significant interest among developers with 60 ongoing projects. The development signifies the brand's growing momentum and success in the market. Given the solid appeal of the new product in the development community, the company is optimistic and anticipates higher contracts moving into 2023.
Choice Hotels focuses on incremental conversion and new construction brands to expand the reach of its franchise business and revenue intense segments. In the second quarter, conversions for the domestic rooms pipeline increased 28% year over year. During the first half 2023, the company opened two-third of the 126 domestic franchise agreements and stated to open to open the remaining by 2023-end. In the future, the company remains optimistic regarding the conversion projects momentum and anticipates opening 60 conversion projects in the next three months.
To support its franchise business, the company rolled out a new mobile-enabled revenue management app. The tool allows franchisees to effectively manage their channel rates and inventory by adapting to local market trends. This includes repricing and competitive rate shopping to execute the right pricing strategy. With higher acceptance of rate recommendations and solid bookings, the company anticipates this enhanced capability to drive top-line growth in the upcoming periods.
Image Source: Zacks Investment Research
Shares of CHH have gained 10.1% in the past three months compared with the industry’s 6.9% growth.
Concerns
The company has been bearing the brunt of high expenses for some time. During the second quarter of 2023, total operating expenses increased 42% year over year to $303 million from $213.9 million reported in the year-ago quarter. The upside was due to increased selling, general and administrative expenses related to operational restructuring charges, primarily salary and benefit continuation payments. This and transition costs in SG&A expenses related to integrating the Radisson Hotels Americas business affected total operating expenses.
The company believes that if inflation rates rise moderately, it will likely lead to comparable or even higher increases in hotel room rates. The company is monitoring future inflation trends and assessing any potential impacts. Per our model, total operating costs in 2023 are expected to rise 22.5% year over year to $1,151.2 million.
Zacks Rank & Key Picks
Choice Hotels currently carries a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates a rise of 55.2% and 182.8%, respectively, from the year-ago period’s levels.
Hilton Worldwide Holdings Inc. (HLT - Free Report) carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 12.5% on average. Shares of HLT have increased 16.7% in the past year.
The Zacks Consensus Estimate for HLT’s 2023 sales and EPS indicates a rise of 14.8% and 23.7%, respectively, from the year-ago period’s levels.
OneSpaWorld Holdings Limited (OSW - Free Report) currently carries a Zacks Rank #2. OSW has a trailing four-quarter earnings surprise of 42.6% on average. Shares of OSW have increased 25.7% in the past year.
The Zacks Consensus Estimate for OSW’s 2023 sales and EPS indicates a rise of 44.5% and 117.9%, respectively, from the year-ago period’s levels.
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Here's Why You Should Retain Choice Hotels' (CHH) Stock
Choice Hotels International, Inc. (CHH - Free Report) is likely to benefit from synergies through the Radisson Hotels Americas integration and momentum in the conversion projects pipeline. Also, focus on continual expansion strategies through acquisitions and franchise agreements bodes well. However, increased expenses and an uncertain macroeconomic environment are a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Growth Catalysts
Choice Hotels is benefiting from the integration of Radisson Americas hotels. This initiative has paved the path toward an expanded loyalty program, extended co-brand credit card opportunity and increased footprint in the Americas region.
CHH has already surpassed its expectations, delivering adjusted EBITDA of $80 million through the integration of Radisson Hotels Americas. In July 2023, the company onboarded the nearly 600 Radisson Hotels Americas hotels onto its world-class reservation delivery engine and integrated the two award-winning loyalty programs. For 2024, the company expects adjusted EBITDA from Radisson Hotels Americas to exceed $80 million.
Choice Hotels relies on expansion to drive growth. As of Jun 30, 2023, the company's domestic and extended-stay domestic pipeline reached 899 hotels (approximately 87,000 rooms) and 450 hotels, up 9% and 17%, respectively. The Global pipeline increased 29% compared with the prior-year quarter’s levels, representing 61 hotels (over 6,300 rooms).
In 2023, the newly-introduced Everhome Suites extended stay brand experienced a promising start, generating significant interest among developers with 60 ongoing projects. The development signifies the brand's growing momentum and success in the market. Given the solid appeal of the new product in the development community, the company is optimistic and anticipates higher contracts moving into 2023.
Choice Hotels focuses on incremental conversion and new construction brands to expand the reach of its franchise business and revenue intense segments. In the second quarter, conversions for the domestic rooms pipeline increased 28% year over year. During the first half 2023, the company opened two-third of the 126 domestic franchise agreements and stated to open to open the remaining by 2023-end. In the future, the company remains optimistic regarding the conversion projects momentum and anticipates opening 60 conversion projects in the next three months.
To support its franchise business, the company rolled out a new mobile-enabled revenue management app. The tool allows franchisees to effectively manage their channel rates and inventory by adapting to local market trends. This includes repricing and competitive rate shopping to execute the right pricing strategy. With higher acceptance of rate recommendations and solid bookings, the company anticipates this enhanced capability to drive top-line growth in the upcoming periods.
Image Source: Zacks Investment Research
Shares of CHH have gained 10.1% in the past three months compared with the industry’s 6.9% growth.
Concerns
The company has been bearing the brunt of high expenses for some time. During the second quarter of 2023, total operating expenses increased 42% year over year to $303 million from $213.9 million reported in the year-ago quarter. The upside was due to increased selling, general and administrative expenses related to operational restructuring charges, primarily salary and benefit continuation payments. This and transition costs in SG&A expenses related to integrating the Radisson Hotels Americas business affected total operating expenses.
The company believes that if inflation rates rise moderately, it will likely lead to comparable or even higher increases in hotel room rates. The company is monitoring future inflation trends and assessing any potential impacts. Per our model, total operating costs in 2023 are expected to rise 22.5% year over year to $1,151.2 million.
Zacks Rank & Key Picks
Choice Hotels currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector include:
Royal Caribbean Cruises Ltd. (RCL - Free Report) sports a Zacks Rank #1 (Strong Buy). RCL has a trailing four-quarter earnings surprise of 28.5% on average. Shares of RCL have gained 92% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates a rise of 55.2% and 182.8%, respectively, from the year-ago period’s levels.
Hilton Worldwide Holdings Inc. (HLT - Free Report) carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 12.5% on average. Shares of HLT have increased 16.7% in the past year.
The Zacks Consensus Estimate for HLT’s 2023 sales and EPS indicates a rise of 14.8% and 23.7%, respectively, from the year-ago period’s levels.
OneSpaWorld Holdings Limited (OSW - Free Report) currently carries a Zacks Rank #2. OSW has a trailing four-quarter earnings surprise of 42.6% on average. Shares of OSW have increased 25.7% in the past year.
The Zacks Consensus Estimate for OSW’s 2023 sales and EPS indicates a rise of 44.5% and 117.9%, respectively, from the year-ago period’s levels.