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Choice Hotels' Strategic Efforts to Boost Long-Term Growth

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Choice Hotels International, Inc.’s (CHH - Free Report) enhancement of mid-scale brand, acquisition of WoodSpring brand as well as transformation and advancement brands bode well. However, high costs of operations remain a concern for the company. Let’s delve deeper.

Hidden Catalysts

The Choice Hotels’ riveting growth potential is backed by consistent brand expansion. Choice Hotels. Also, its portfolio of well-segmented brands is getting stronger. Backed by continuous enhancement of the mid-scale brand, the WoodSpring acquisition, and transformation and advancement of the Comfort and Cambria brands, Choice Hotels is poised for growth in 2018. For the current year, earnings estimates have been revised upward by 1.6% over the past 60 days, reflecting analysts’ optimism surrounding the company’s future earnings potential.

Furthermore, Choice Hotels relies heavily on expansion in both domestic and international markets. Apart from constant franchise expansion, the company recently added 239 new extended-stay hotels in 35 states to its portfolio through the acquisition of Woodspring Suites. Meanwhile, management continues expanding its international footprint in new countries alongside domestic growth. In April, the company announced a strategic alliance with Sercotel — a leading hotel operator and franchisor based in Spain. This alliance will enable the extension of Choice Hotels’ global footprint in Spain and other markets, and create opportunities for additional hotel development across Europe and Latin America.

These apart, Choice Hotels’ franchisee business has been a major revenue source. Higher fee from franchisees and transfer of cost burden on franchises provide the company with operational advantages. Apart from royalty fees and procurement services revenues, Choice Hotels collects marketing and reservation system fees in lieu of support services for franchise systems. Notably, in the first half of 2018, hotel franchising revenues increased 13.6% year over year.

Hurdles to Cross

Despite the positive synergies to be realized from acquisitions and increased focus on franchising, Choice Hotels is shouldering high costs from operations. Total operating expenses in the first six months of 2018 increased 10% year over year.

Moreover, the hotel industry has become highly competitive as major hospitality chains with well-established and recognized brands are continuously expanding their global presence. Choice Hotels, which share space with Marriott International, Inc. (MAR - Free Report) , Hyatt Hotels Corporation (H - Free Report) and Red Lion Hotels Corporation (RLH - Free Report) is continuously facing intense competition from both large hotel chains and smaller independent local hospitality providers. The company faces competition from new channels of distribution in the travel industry as well.

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