Choice Hotels (CHH) Down 2.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
·3-min read

A month has gone by since the last earnings report for Choice Hotels (CHH). Shares have lost about 2.5% 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 its most recent earnings report in order to get a better handle on the important drivers.

Choice Hotels Q1 Earnings Top, Revenues Miss Estimates

Choice Hotels delivered mixed first-quarter 2024 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.

Patrick Pacious, president and CEO, expressed satisfaction with first-quarter performance, which was built on the company's record financial results in 2023. CHH benefited from impressive outcomes of the effective realization of revenue synergies, stemming from the Radisson Americas acquisition.

Q1 Earnings and Revenues

Choice Hotels reported adjusted earnings per share (EPS) of $1.28, beating the Zacks Consensus Estimate of $1.15 by 11.3%. It reported adjusted EPS of $1.12 in the prior-year quarter.

Quarterly revenues of $331.9 million missed the consensus mark of $345 million. The metric dipped 0.3% from the year-ago quarter’s level of $332.8 million.

Franchising & Royalties

Royalty, licensing and management fees decreased 2% year over year to $105.5 million. In the three-month period ending Mar 31, domestic revenue per available room (RevPAR) experienced a decline of 590 basis points year over year. This decrease can be attributed, in part, to the timing of the Easter weekend and more challenging year-over-year comparisons. However, despite this decline, domestic RevPAR showed a notable increase of 8.2% compared with the same period in 2019.

The effective royalty rate increased 4 basis points year over year to 5.03%.

Operating Results

Total operating expenses increased 7% year over year to $271.8 million. Our estimate for the metric was $268.3 million.

Adjusted EBITDA came in at $124.3 million compared with $106.4 million reported in the prior year. We expected the metric to be $122.8 million.

Balance Sheet

As of Mar 31, Choice Hotels had cash and cash equivalents of $42.1 million compared with $26.8 million as of Dec 31, 2023.

Long-term debt at the end of the first quarter was $1.2 billion compared with $1.1 billion reported in 2023-end.

2024 Outlook

Choice Hotels now anticipates adjusted net income in the range of $306-$320 million, down from the prior estimate of $316-$331 million. Adjusted EBITDA is expected to be between $580 million and $600 million.

Adjusted EPS is expected to be in the range of $6.30-$6.60. The Zacks Consensus Estimate is pegged at $6.46.

Domestic RevPAR growth is estimated to be in the range of flat to up 2% compared with 2023 levels. Domestic effective royalty rate is forecast to increase in mid-single digits from the year-earlier levels.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Choice Hotels has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 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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