It has been about a month since the last earnings report for Choice Hotels (CHH - Free Report) . Shares have added about 7.3% in that time frame, outperforming 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 drivers.
Choice Hotels Q2 Earnings & Revenues Beat, View Up
Choice Hotels International reported better-than-expected results in second-quarter 2019. Both the top and bottom lines not only surpassed the Zacks Consensus Estimate but also grew on a year-over-year basis. The upside was mainly attributable to solid progress on its flagship Comfort brand, renovated hotels that are capturing more business travel via strong developer demand and rapid growth in upscale Cambria brand across the country.
This notable lodging franchisor reported adjusted earnings of $1.19 per share, beating the consensus mark of $1.14 by 4.4% and increasing 7.2% year over year. Notably, this marked its sixth straight quarter of earnings beat.
In the quarter under review, total revenues came in at $317.7 million, which increased 8% from the year-ago period and topped the consensus mark of $303 million by 4.8%.
Let’s delve deeper into the numbers.
Franchising & Royalties
Domestic royalty fees totaled $100.8 million, up 3% year over year. However, domestic system-wide RevPAR declined marginally by 0.1% year over year. Average daily rate (ADR) declined 0.1% and occupancy remained flat with the prior-year quarter.
The company’s newly executed domestic franchise agreements were 181 in the second quarter, of which 107 was awarded in June. This marked the largest number of agreements awarded in June in its history.
As of Jun 30, 2019, the number of domestic franchised hotels and rooms rose 2% and 2.1% year over year, respectively.
Total operating expenses during the quarter increased 13% from second-quarter 2018 to $210.5 million. Nonetheless, adjusted operating margin expanded 120 bps year over year. Adjusted EBITDA also increased 6.5% from the prior-year period to $100.4 million.
As of Jun 30, 2019, the company had cash and cash equivalents of $34.4 million compared with $26.6 million on Dec 31, 2018.
Long-term debt in the same period was $784.3 million, up from $753.5 million at 2018-end. Goodwill — as a percentage of total assets — was 13.1% at the end of the second quarter, down from 14.8% at 2018-end.
In the first six months of 2019, Choice Hotels paid cash dividends of $24 million. Based on the current quarterly dividend rate of 21.5 cents per share, the company expects to pay dividends worth approximately $48 million in 2019. Meanwhile, management repurchased roughly $0.5 million shares for nearly $42 million under the share repurchase program during the said period. On Jun 30, 2019, it authorized up to 1.7 million additional shares of common stock under the share repurchase program.
For the third quarter, adjusted earnings per share (EPS) are anticipated within $1.25-$1.29, up from $1.11-$1.15 expected earlier. Notably, the guided range is considerably below the Zacks Consensus Estimate of $1.31. Domestic RevPAR is expected between 0% and 2%.
Full-Year 2019 Guidance
Choice Hotels now expects EPS between $4.16 and $4.22, down from prior expectation within $4.06-$4.18. The mid-point of the guided range is marginally higher than the current Zacks Consensus Estimate of $4.17.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Choice Hotels has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
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 #2 (Buy). We expect an above average return from the stock in the next few months.