Why Is Choice Hotels (CHH) Down 5.9% Since Last Earnings Report?
It has been about a month since the last earnings report for Choice Hotels (CHH). Shares have lost about 5.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Choice Hotels due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Choice Hotels Q4 Earnings & Revenues Beat Estimates, Rise Y/Y
Choice Hotels delivered impressive fourth-quarter 2022 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis.
Q4 Earnings and Revenues
In the quarter under review, Choice Hotels reported adjusted earnings per share (EPS) of $1.26, surpassing the Zacks Consensus Estimate of $1.08. In the prior-year quarter, the company reported an adjusted EPS of 99 cents.
Quarterly revenues of $362 million surpassed the consensus mark of $352 million by 2.9%. Moreover, the metric rose 27% from the year-ago quarter’s level.
Franchising & Royalties
During the fourth quarter, domestic royalty fees increased 18% year over year to $115.6 million. Domestic revenues per available room (RevPAR) increased 20.4% from fourth-quarter 2019 levels. The uptick was driven by a 17.4% increase in the average daily rate.
In 2022, domestic franchise agreements awarded increased by 11% year over year. The company's extended-stay portfolio continues to expand its footprint. As of Dec 31, 2022, the number of domestic pipelines increased 14% year over year to 1,029 hotels.
Operating Results
Total operating expenses during fourth-quarter 2022 increased 60% year over year to $284.7 million. During the quarter, adjusted EBITDA rose 17.8% year over year to $112.5 million.
Balance Sheet
As of Dec 31, 2022, Choice Hotels had cash and cash equivalents of $41.6 million compared with $52.5 million as of Sep 30, 2022.
Long-term debt at the end of the fourth quarter was $1,200.5 million compared with $1,155.1 million reported in the previous quarter.
Goodwill, as a percentage of total assets, came in at 10.4% compared with 8.2% in fourth-quarter 2021 end.
Outlook
For first-quarter 2023, the company anticipates net income in the range of $28-$32 million. Adjusted EBITDA is expected to be between $100 million and $105 million.
In 2023, the company expects adjusted EBITDA in the range of $520-$540 million (including a $60 million adjusted EBITDA contribution from the Radisson Hotels Americas business unit). This represents an 11% growth (at the mid-point) compared with 2022 levels.
Domestic RevPAR growth in 2023 is estimated at approximately 2% compared with 2022.
In 2023, the company’s domestic effective royalty rate (excluding the impact of Radisson Hotels Americas) is anticipated to increase in the mid-single digits compared with 2022 levels.
Other Updates
The domestic extended-stay pipeline reached 496 hotels as of Dec 31, 2022. At the end of fourth-quarter 2022, the number of domestic hotels and rooms increased 6.5% and 7.9%, respectively, from Dec 31, 2021.
2022 Highlights
Total revenues in 2022 came in at $1,401.9 million compared with $1,069.3 million in 2021.
Adjusted EBITDA in 2022 came in at $478.6 million compared with $403.6 million in 2021.
In 2022, adjusted diluted EPS came in at $5.27 compared with $4.29 reported in the previous year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
At this time, Choice Hotels has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 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.
Outlook
Estimates have been broadly trending upward 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.
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Choice Hotels International, Inc. (CHH) : Free Stock Analysis Report
