Here's Why You Should Retain Choice Hotels' (CHH) Stock

Zacks Equity Research
·4-min read

Choice Hotels International, Inc. CHH is likely to benefit from its unit growth strategy, hotel conversions and franchise business. Also, synergies through the Radisson Hotels Americas integration bode well. However, uncertain macroeconomic environments are a concern.

Let us discuss the factors that highlight why investors should retain the stock for now.

Growth Catalysts

The company's distinct unit growth strategy continues to yield positive results, enhancing the attractiveness of its brands. By focusing on more revenue-intense hotels, CHH has significantly expanded its portfolio of higher revenue-generating franchises. The new franchises have proven to be more accretive to earnings, with average royalty revenues rising more than 20% from existing hotels.

The company's success is fueled by its ongoing commitment to enhance the value proposition for franchise owners, supported by investments in developing a best-in-class franchisee success system. In the past two years, the direct online contribution to franchisees increased by over 10%. The company continues to significantly improve the performance of Radisson Americas hotels by increasing traffic and booking conversion rates, which reduces customer acquisition costs for franchisees.

Choice Hotel's expertise in hotel conversion has become increasingly impactful in the current development environment. Their superior speed-to-market conversion processes and top-tier franchisee support enable rapid project progression, allowing the company to generate revenues sooner. In the past 12 months, CHH opened 113 domestic franchise agreements for conversion hotels, up 43% year over year. The core competency is expected to remain a key growth driver as more developers opt to convert to CHH brands.

The acquisition of Radisson Americas significantly bolstered the growth trajectory of the company in first-quarter 2024, marking a substantial leap in business size. The move amplified the rewards program and widened geographical coverage and generated new value through platform capabilities. Additionally, it paved the path for fresh sources of earnings, ultimately contributing to increased profitability.

Since the digital integration (from August 2023 through March 2024), the company witnessed a surge of over 20% in stays via domestic, direct online channels for Radisson Americas brands, with particularly robust growth for the Country Inn & Suites brand (surpassing 30%). The performance uptick post-integration is attracting increased commitments to new hotel developments. In the first quarter, the company reported a 60% year-over-year rise in new applications for domestic franchise agreements for the Country Inn & Suites by Radisson brand. The company focuses on the second phase of value creation from the acquisition, aiming to expand the Radisson Americas portfolio in the Americas region.

Concerns

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Zacks Investment Research


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Shares of CHH have declined 3.3% in the past year against the industry’s 29.9% growth. A volatile macroeconomic environment primarily caused the downside. The company believes that if inflation rates rise moderately, it will likely lead to comparable or even higher increases in hotel room rates. The company is monitoring future inflation trends and assessing any potential impacts. Also, interest rate changes and fluctuations in foreign currencies are a concern.

Zacks Rank & Key Picks

Choice Hotels currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Consumer Discretionary sector include:

Strategic Education, Inc. STRA currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

STRA has a trailing four-quarter earnings surprise of 36.2%, on average. The stock has surged 43.2% in the past year. The Zacks Consensus Estimate for STRA’s 2024 sales and earnings per share (EPS) indicates an increase of 6.4% and 33.3%, respectively, from the year-ago levels.

Royal Caribbean Cruises Ltd. RCL currently sports a Zacks Rank of 1. RCL has a trailing four-quarter earnings surprise of 18.3%, on average. The stock has rallied 84.3% in the past year.

The Zacks Consensus Estimate for RCL’s 2024 sales and EPS calls for growth of 16.6% and 61.9%, respectively, from the year-ago levels.

Hasbro, Inc. HAS presently flaunts a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 17.5%, on average. The stock has gained 18% in the year-to-date period.

The Zacks Consensus Estimate for HAS’ 2025 sales and EPS suggests an improvement of 4% and 14%, respectively, from the year-ago levels.

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