It has been about a month since the last earnings report for Choice Hotels (CHH Quick QuoteCHH - Free Report) . Shares have added about 26.7% 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 catalysts.

Choice Hotels Q1 Earnings Surpass Estimates, Decline Y/Y

Choice Hotels reported first-quarter 2020 results, wherein the top and the bottom line surpassed the Zacks Consensus Estimate. However, the top line was almost flat compared to the prior-year quarter, while the bottom line declined year over year.

The lodging franchisor reported adjusted earnings of 76 cents per share, surpassing the consensus mark of 64 cents. However, the bottom line dropped 9.5% from the prior-year number due to a rise in operating expenses.

In the quarter under review, total revenues came in at $218.2 million. Although the figure topped the consensus mark of $214 million, it remained relatively flat compared to the prior-year levels.

The coronavirus pandemic is hurting demand and occupancy. The company expects it to affect operations in the future as well. Owing to the unprecedented nature of the crisis, the company has withdrawn its 2020 guidance. Meanwhile, to boost liquidity, the company has temporarily suspended dividend payouts and share repurchase programs.

Franchising & Royalties

Domestic royalty fees totaled $66.3 million, down 12.2% year over year. Also, domestic system-wide RevPAR declined 15% year over year. Average daily rate (ADR) inched down 3.8% and occupancy was down 610 basis points compared with the prior-year quarter’s level.

The company’s newly-executed domestic franchise agreements were 58 in the first quarter. As of Mar 31, 2020, the number of domestic hotels and rooms rose 1.2% and 2.7% year over year, respectively.

Operating Results

Total operating expenses increased 5% from first-quarter 2019 to $171.8 million. However, adjusted EBITDA declined 8.3% from the prior-year quarter to $69.2 million.

Balance Sheet

As of Mar 31, 2020, the company had cash and cash equivalents of $321.9 million compared with $33.8 million on Dec 31, 2019.

Long-term debt in the same period was $1,208.9 million, up from $844.1 million at 2019-end. Goodwill, as a percentage of total assets, was 30% at the end of the first quarter compared with 67.3% at 2019-end.

In the first quarter, Choice Hotels paid out cash dividends of $12.8 million. 

Meanwhile, management repurchased roughly $0.7 million shares for nearly $54.1 million under the share repurchase program during the first quarter. As of Mar 31, 2020, the company had 3.4 million shares remaining under the current share repurchase authorization.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -64.55% due to these changes.

VGM Scores

Currently, Choice Hotels has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. 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 F. 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.