It has been about a month since the last earnings report for Choice Hotels (CHH Quick QuoteCHH - Free Report) . Shares have added about 0.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Choice Hotels due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts. <p style="text-align: justify;"><strong><u>Choice Hotels Beats on Q2 Earnings, Raises EPS View</u></strong></p><p style="text-align: justify;">Choice Hotels reported mixed results for the second quarter of 2018, wherein earnings surpassed analysts&rsquo; expectation, whereas revenues lagged the same.</p><p style="text-align: justify;">Adjusted earnings of $1.11 topped the Zacks Consensus Estimate of $1.05 by 5.7% and increased 48% from the year-ago quarter. Earnings were favored by the company&rsquo;s core franchising operations and an effective tax rate.</p><p style="text-align: justify;">Total revenues of $295.4 million lagged the consensus estimate of $310 million but increased 13% from the year-ago level on higher revenue per available room (RevPAR) growth.</p><p style="text-align: justify;">Increased demand for lodging, along with Choice Hotel&rsquo;s continual expansion strategies through acquisitions and franchise agreements, has helped the company to witness year-over-year growth in both top and bottom lines.</p><p style="text-align: justify;"><strong>Franchising &amp; Royalties Details</strong></p><p style="text-align: justify;">Hotel franchising revenues in the second quarter witnessed rise of 14%. Adjusted EBITDA from hotel franchising activities increased 18% from the prior-year quarter to $95.8 million. Adjusted hotel franchising margins also expanded 90 basis points (bps) year over year to 68.2% in the reported quarter.</p><p style="text-align: justify;">Domestic royalty fees in the quarter under review amounted to $97.6 million, marking a 13% year-over-year increase. Domestic system-wide RevPAR increased 2.7% year over year. While average daily rates (ADR) moved up 2.4%, occupancy increased 20 bps from the prior-year quarter.</p><p style="text-align: justify;">As of Jun 30, 2018, the number of domestic franchised hotels and rooms increased 6.5% and 8.8%, respectively.</p><p style="text-align: justify;"><strong>Operating Results</strong></p><p style="text-align: justify;">Total operating expenses in the second quarter were $186.5 million, up 7% from the second quarter of 2017. Operating income increased 26% to $109 million. Net income was $79.8 million in the second quarter of 2018.</p><p style="text-align: justify;"><strong>Balance Sheet</strong></p><p style="text-align: justify;">Cash and cash equivalents at the end of the second quarter totaled $37.1 million compared with $235.3 million as of Dec 31, 2017.</p><p style="text-align: justify;">Long-term debt as of Jun 30, 2018, was $795.1 million, up from $725.3 million as of Dec 31, 2018. Goodwill as a percentage of total assets at the end of the second quarter was 15.4%, up from 8.1% at the end of 2017.</p><p style="text-align: justify;">By the end of the second quarter of 2018, Choice Hotels paid cash dividends totaling $24 million. Based on the current quarterly dividend rate of 22 cents per share of common stock, the company expects to pay dividends worth approximately $49 million during 2018. Meanwhile, management also repurchased roughly $71 million shares of common stock under its share repurchase program during the first half of 2018.</p><p style="text-align: justify;"><strong>Third-Quarter Guidance</strong></p><p style="text-align: justify;">For the third quarter, earnings per share are anticipated to be $1.13-$1.17, up from the previous guidance of $1.00-$1.03. Domestic RevPAR is expected to remain between flat and up 1.5% in the third quarter.</p><p style="text-align: justify;"><strong>Raises 2018 EPS Outlook</strong></p><p style="text-align: justify;">For 2018, Choice Hotels expects EPS to be $3.71-$3.77, up from the earlier guidance of $3.61-$3.71. Adjusted EBITDA for 2018 is expected to be between&nbsp;$333 million&nbsp;and&nbsp;$339 million.</p><p style="text-align: justify;">Net domestic unit growth for 2018 is expected to be 7-8%. Domestic RevPAR is expected to grow between 1.5% and 3%.</p>

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Choice Hotels has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Choice Hotels has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.