Choice Hotels International (CHH) Up 14% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Choice Hotels (CHH). Shares have added about 14% 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 International 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 Q4 Earnings Beat Estimates, Rise Y/Y
Choice Hotels delivered mixed fourth-quarter 2023 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. The top line fell year over year, while the bottom line increased from the prior-year quarter’s figure.
Q4 Earnings and Revenues
In the quarter under review, Choice Hotels reported adjusted earnings per share (EPS) of $1.44, beating the Zacks Consensus Estimate of $1.35 by 6.7%. The company reported an adjusted EPS of $1.26 in the prior-year quarter.
Quarterly revenues of $358.4 million missed the consensus mark of $370 million. The metric dropped 1% from the year-ago quarter’s level of $362 million.
Franchising & Royalties
During the fourth quarter, royalty, licensing and management fees increased 1% year over year to $116.9 million. During the quarter, domestic revenues per available room (RevPAR) increased 13.1% from 2019 levels.
During the quarter, the effective royalty rate increased 6 basis points (bps) year over year to 4.99%.
Operating Results
Total operating expenses during fourth-quarter 2023 increased 11% year over year to $316.9 million. Our estimate for the metric was $307.1 million.
During the quarter, adjusted EBITDA came in at $125 million compared with $112.5 million reported in the prior year period. Our estimate for the metric was $121.3 million.
Balance Sheet
As of Dec 31, 2023, Choice Hotels had cash and cash equivalents of $26.8 million compared with $41.6 million as of Dec 31, 2022.
Long-term debt at the end of the fourth quarter was $1.1 billion compared with $1.2 billion reported in the 2022-end.
During the fourth quarter, Goodwill came in at $220.2 million compared with $218.7 million at 2022-end.
2023 Highlights
Total revenues in 2023 came in at $1.5 billion compared with $1.4 billion in 2022.
Adjusted EBITDA in 2023 came in at $540.5 million compared with $478.6 million in 2022.
In 2023, adjusted diluted EPS came in at $6.11 compared with $5.27 reported in the previous year.
Other Updates
In 2023, the company reported a 1.4% year-over-year growth in its domestic upscale, extended stay, and midscale portfolio for hotels and a 1.6% year-over-year increase in rooms. Specifically, the domestic upscale and extended stay rooms expanded by 6.3% and 14.9% year over year, respectively, during the same period. The increase was fueled by an uptick in the number of Cambria Hotels, Ascend Hotel Collection, WoodSpring Suites, MainStay Suites, and Suburban Studios units. As of Dec 31, 2023, the company's overall domestic system size reached over 6,300 hotels and nearly 497,000 rooms.
2024 Outlook
For 2024, the company anticipates adjusted net income in the range of $316-$331 million. Adjusted EBITDA is expected to be between $580 million and $600 million. The company anticipates adjusted diluted EPS in the range of $6.3-$6.60. The Zacks Consensus Estimate for 2024 earnings is pegged at $6.82.
Domestic RevPAR growth in 2024 is estimated at approximately 2% compared with 2023 levels. For the same period, the company’s domestic effective royalty rate is anticipated to increase in the mid-single digits on a year-over-year basis.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -12.33% due to these changes.
VGM Scores
Currently, Choice Hotels International has an average Growth Score of C, though it is lagging a lot 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 D. 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. It's no surprise Choice Hotels International has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Choice Hotels International is part of the Zacks Hotels and Motels industry. Over the past month, Marriott International (MAR), a stock from the same industry, has gained 4.4%. The company reported its results for the quarter ended December 2023 more than a month ago.
Marriott reported revenues of $6.1 billion in the last reported quarter, representing a year-over-year change of +2.9%. EPS of $3.57 for the same period compares with $1.96 a year ago.
Marriott is expected to post earnings of $2.17 per share for the current quarter, representing a year-over-year change of +3.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.2%.
Marriott has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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Choice Hotels International, Inc. (CHH) : Free Stock Analysis Report
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