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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, expansion efforts and strategic partnerships. Also, the emphasis on the conversion projects pipeline bodes well. However, uncertain macroeconomic environments 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.

During the third quarter of 2023, CHH reported $84 million of annual recurring synergies through the integration of Radisson Hotels Americas. The company reported improved business performance through the integration of digital channels and rewards programs. Also, the rise in traffic and booking conversion rate on the Choice website and mobile apps added to the positives.

So far, the company has migrated 75% of Radisson Americas hotels onto its property management system and expects the remaining properties to be onboarded by the 2023 end. Given the rapid integration of Radisson Americas coupled with a rise in the velocity of hotel openings, the company is optimistic and anticipates the initiative to drive growth.

Choice Hotels relies heavily on expansion in both domestic and international markets. Through September 2023, the company reported more than four openings per week (on average). It opened 159 domestic hotels, reflecting a rise of 24% year-over-year. During the third quarter, the company announced a strategic partnership with a hotel operator in Mexico. The arrangement paves a path for growth in the international portfolio as well as enhancement in Choice Hotels' rewards program.

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. Also, it reported traction with respect to the next-generation Sleep Inn prototype and a Country Inn & Suites room refresh.

Choice Hotels focuses on incremental conversion and new construction brands to expand the reach of its franchise business and revenue-intensive segments. In the third quarter, modifications for the global rooms pipeline increased 11% year over year. During the first nine months of 2023, 72% of the domestic agreements awarded were for conversion hotels. The company opened two-thirds of the conversion hotels for domestic franchise agreements and stated to open the remaining by 2023-end. Given the superior speed-to-market conversion processes and best-in-class franchisee support, the company anticipates the momentum to continue in the upcoming periods.


Zacks Investment Research
Image Source: Zacks Investment Research

Shares of CHH have declined 4.9% in the past year against the industry’s 16.4% growth. A volatile macroeconomic environment primarily caused the downside. 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 23% year over year to $1,155.6 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 28.3% on average. Shares of RCL have surged 80.8% 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 earnings per share (EPS) indicates a rise of 57.6% and 187.1%, respectively, from the year-ago period’s levels.

Live Nation Entertainment, Inc. (LYV - Free Report) sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 37.5% on average. Shares of LYV have increased 28.5% in the past year.

The Zacks Consensus Estimate for LYV’s 2023 sales and EPS indicates a rise of 27.3% and 115.6%, respectively, from the year-ago period’s levels.

Skechers U.S.A., Inc. (SKX - Free Report) carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 50.3% on average. Shares of SKX have increased 36% in the past year.

The Zacks Consensus Estimate for SKX’s 2023 sales and EPS indicates a rise of 8.2% and 44.5%, respectively, from the year-ago period’s levels.

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