Choice Hotels International, Inc. (CHH) on Q1 2021 Results - Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Choice Hotels International First Quarter 2021 Earnings Call. Please note, this call is being recorded. I would now like to turn the conference over to Allie Summers, Investor Relations Director for Choice Hotels. Allie Summers: Good morning, and thank you for joining us today. Before we begin, we'd like to remind you that during this conference call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its results. Actual results may differ materially from those indicated in forward-looking statements, and you should consult the company's Forms 10-Q, 10-K and other SEC filings for information about important risk factors affecting the company that you should consider. Pat Pacious: Thanks, Allie, and good morning, everyone. Thank you for joining our first quarter 2021 earnings call, and I hope you are all well. As you'll hear today, we believe that the deliberate set of strategic decisions we've made in recent years and our targeted actions during the pandemic, along with the dedication and hard work of our franchise owners to navigate the impact of the pandemic, drove impressive results that position us well to further capitalize on growth opportunities in 2021 and beyond. Throughout my remarks today, I'll provide comparisons not only to prior year but also to 2019, which we believe are more meaningful in analyzing performance trends as the prior year's quarter results were impacted by the pandemic. In the first quarter of 2021, we once again delivered results that significantly outperformed the industry, our chain scale segments and local competition. And we expanded our adjusted EBITDA margins to 69%. Our domestic system-wide year-over-year RevPAR change surpassed the industry by 23 percentage points, declining 4.4% and 18.7% as compared to the same quarters of both 2020 and 2019, respectively. And we continued to achieve sequential quarter-over-quarter improvement. In addition, we generated steady month-over-month growth in our choicehotels.com and other proprietary digital channels revenue contribution mix throughout the quarter. We also benefited from our most loyal customers, Choice Privileges, Diamond Elite members, who contributed an even higher percentage of overall revenue for the quarter as compared to 2020 and 2019. These results have helped us increase RevPAR index versus our local competitors by over 6 percentage points in the first quarter as compared to 2019. We achieved that through notable lifts in both weekday and weekend RevPAR index and up significantly across all location types as reported by STR. Dom Dragisich: Thanks, Pat, and good morning, everyone. I hope you and your families are all well. Today, I'd like to provide additional insights around our first quarter results; update you on our liquidity profile and approach to capital allocation; and finally, share our thoughts on the outlook for the road ahead. Taking a closer look at our results. For first quarter 2021, total revenues, excluding marketing and reservation system fees, were $91.4 million. Adjusted EBITDA totaled $63.1 million, driven by improving RevPAR performance and our ability to realize adjusted SG&A savings of 20%, and our adjusted EBITDA margin expanded to 69%, a 330-basis point increase year-over-year. As a result, our adjusted earnings per share were $0.57 for the first quarter. Let's take a closer look at our 3 key revenue levers, beginning with RevPAR. Our domestic system-wide RevPAR outperformed the overall industry by 23 percentage points for the first quarter, declining 18.7% from 2019. Compared to 2020, our first quarter 2021 RevPAR declined only 4.4%. At the same time, our first quarter results exceeded the primary chain scale segments, in which we compete as reported by STR by nearly 8 percentage points versus 2019. Our domestic system-wide occupancy rate has seen significant improvement since mid-March 2021. In fact, starting in mid-March, we've experienced our highest occupancy levels since the start of the pandemic, with system-wide occupancy rates exceeding 70% on numerous days. We are optimistic that these demand trends will remain elevated, especially throughout summer and will further strengthen the financial health of our franchisees. The trends of improving RevPAR performance have continued into the second quarter. Our April performance was significantly stronger with a RevPAR decline of approximately 4% and an occupancy rate increase of 80 basis points versus 2019 levels. These trends give us even greater optimism for our 2021 performance. We've long focused our brand strategy on driving growth across the higher value and more revenue intense upscale, extended-stay and mid-scale segments. And the investments we've made are paying off. In the first quarter, these strategic segments helped us achieve material RevPAR change outperformance against our respective industry chain scales and drove gains versus our local competitors. Specifically, when compared to first quarter 2019, our upscale portfolio increased its RevPAR index relative to its local competitive set by 14 percentage points. Our extended-stay portfolio outperformed the industry's RevPAR change by an impressive 38 percentage points and grew versus its local competitive set by 10 percentage points. And finally, the RevPAR change for our mid-scale and upper mid-scale portfolio exceeded these segments by 9 percentage points. For the first quarter 2021 versus the same period of 2019, all of our brands achieved RevPAR index gains versus their local competitors. In fact, we were able to increase our overall RevPAR index against local competitors by over 6 percentage points, notably through our franchisees' ability to maintain rate integrity. More specifically, our average daily rate improved from the prior quarter, and our average daily rate index increased 3.7 percentage points as compared to 2019. We've also observed firsthand that our investments in pricing optimization capabilities for our franchisees are paying off. At the same time, we continue to grow the overall size of our franchise system and open the highest number of hotels in any first quarter in the past 10 years. Across our more revenue-intense brands and the upscale, extended-stay and mid-scale segments, we observed stronger unit growth, increasing the number of hotels by 2.4% year-over-year and improving the growth from fourth quarter 2020. For full year 2021, we expect our overall unit growth trend to continue. Furthermore, we expect the unit growth of the more revenue-intense segments to accelerate versus 2021 and range between 2% and 3%. Aided by our strong value proposition and outperformance, demand for our brands continued to gain momentum since the beginning of the year, with over half of the domestic agreements executed in the month of March. Specifically, we saw an increase in demand for our conversion brands, with domestic conversion contracts up 76% year-over-year. Our royalty rate remains a significant source of our revenue growth, which is driven by the attractive value proposition we provide to our franchisees, their continued desire to be affiliated with our proven brands, and our pipeline. The company's domestic effective royalty rate exceeded 5% for the first time ever in a quarter and increased 7 basis points year-over-year for the first quarter compared to the prior year. We expect to maintain the historical growth trajectory of this lever in 2021 as owners seek Choice Hotels' proven capabilities of delivering strong top line revenues to their hotels, while helping them maximize return on investment. I'd now like to turn to our liquidity profile and share a capital allocation update. Our strong results have led to an even stronger liquidity position for the company. At the end of first quarter 2021, the company had approximately $823 million in cash and available borrowing capacity through its revolving credit facility, even though our cash generation tends to be weaker in the first quarter due to the seasonality of our business and other cash outlays. Given the continuing improvements in our operations, our strong liquidity and credit profile and our increasing optimism for 2021 and beyond, our Board has approved the reinstatement of our quarterly dividend at the pre-pandemic level beginning in July 2021. Additionally, the Board has also approved the resumption of the company's share repurchase program. Both actions highlight the confidence we have in our business to continue generating strong levels of cash and are a testament to our impressive results, while reflecting our continued commitment to driving long-term shareholder value and returning excess capital to our shareholders. Nevertheless, our capital allocation philosophy remains unchanged. We will continue to be disciplined stewards of capital and take steps that we believe will maximize shareholder value. Choice's primary objective in this area has always been to increase organic growth by strategically investing back into the business. We will continue to monitor the environment for other investment opportunities and evaluate capital returns in the context of our leverage levels, market conditions and our overall capital allocation strategy. Before closing, I'd like to offer some thoughts on what lies ahead. While we are not providing formal guidance today, we currently expect RevPAR change for the remainder of the year to be stronger than first quarter 2021 results versus both 2020 and 2019. Our view is reinforced by the following: first, we continue to see consumers' desire to travel climbing, aided by the vaccine rollout, and improving domestic economic environment and higher levels of consumer savings. Second, we are pleased that our domestic RevPAR change has continued the pattern of sequential improvement with significantly stronger April RevPAR results versus 2019 and trends continuing into May. We currently expect strong travel demand trends to continue. Finally, we continue to be optimistic given other positive trends, such as demand increases in key urban locations and our share gains in business travel, combined with the continued resilience of leisure demand. We will continue to evaluate the impact of COVID-19 across the business and will provide further updates in August during our next earnings call. In closing, we remain optimistic that Choice Hotels is well positioned to succeed in 2021 and beyond. Our resilient primarily asset-light, franchise-focused business model, which has historically delivered stable returns throughout economic cycles and provided a degree of cushion for market risks, will continue to benefit us in the long run. Our investments for the long term that propel our future forward, coupled with our strategic approach, disciplined capital allocation strategy and strong balance sheet will allow us to continue to capitalize on opportunities during the recovery and drive outsized returns for years to come. At this time, Pat and I would be happy to answer any questions. Operator? Operator: Our first question today comes from Robin Farley with UBS. Robin Farley: Just to follow up on the share repurchase authorization. When do you anticipate -- is there anything in terms of balance sheet targets before you anticipate actually doing share repurchase? Pat Pacious: Robin, it's -- share repurchase has always been a key part of our capital allocation strategy. I think when you just look at the recovery of the business, you look at our liquidity position, it allows us to do a share repurchase program. I would probably, I would state it that way. Historically, we haven't been programmatic in our share repurchase. We've been more opportunistic when we see the share price in a dislocated or discounted fashion relative to intrinsic value. So those are the things that we look for with regard to when we would go into the market and repurchase shares. So as of Friday, we have the ability to sort of go back and do that. And then we'll -- we're essentially returning to the capital allocation strategy that we had prior to the pandemic. So there aren't specific metrics that we look for other than a discount to intrinsic value. Dom Dragisich: Yes. The only thing I would add is just in terms of that capital allocation hierarchy, obviously, we've always talked about internal investments that are going to drive outsized growth first, M&A opportunities and then returning capital to shareholders. In terms of the balance sheet position, I mean, you see where we are. We were one of the very few, if not the only ones that had -- that didn't have to renegotiate a covenant as well. And so from that perspective, I don't think that this is an either/or. I think a lot of folks have said, oh, you're going to invest in the business instead of returning capital to shareholders. I think that we're going to have the opportunity to do all of the above over the course of the next several months. Robin Farley: Okay. Great. And if I could ask as a follow-up. I know you talked about the acceleration in growth in the upscale and extended-stay. I'm just curious whether you expect, on a company-wide basis, acceleration from the 2020 growth rate, which I think was about 0.4% overall. Do you think on a company-wide basis, that will accelerate this year as well? Dom Dragisich: Yes, Robin, I think the only guidance that we provided in the prepared remarks, obviously, was the acceleration in those revenue-intense segments. Last year, those revenue intense segments grew at about 2%. We gave guidance for 2% to 3% this year. I think that in terms of modeling, I would expect to see the trends that you're seeing today in the economy segment probably carry forward to 2021, but we're certainly seeing that acceleration in terms of those revenue-intense segments. The only thing I would say is it's not really just the story of net unit growth. This is really a story of net royalty contribution. I think that's really important, and that's why we always talk about the revenue-intense segments, and that's the reason that we provided guidance. At the end of the day, we're adding these more revenue-intense segments. So getting to that historical 3% to 4% unit growth is not the only goal here. It's really around getting to that 3% to 4%, maybe even 4% to 5%, that royalty growth overall. Operator: Our next question comes from Dany Asad with Bank of America. Dany Asad: Pat and Dom, you both mentioned April trends that were pretty impressive relative to 2019 levels, but we've also heard that spring break really did create a spike in demand, and we might even have some element of stimulus that could be propping up demand here. So maybe can you just help us, first, just wrap our head around the sustainability of this -- the trend of the recovery and kind of how you feel about the balance of the year, whether it's any data points or what you're kind of seeing on the ground? Pat Pacious: Yes, Dan, it's a great question. I mean I've sort of referred to this sort of the pent-up demand and the bow wave of return to travel that we're going to see. And then the question is going to be, at what point does the bow wave subside into something that's more normalized. I would say, on the positive front, I mean, if I look at our group travel, for instance, we're already ahead of 2019 levels with our sports segment, and that was in Q1. And the forward bookings for June and July for that segment alone are significantly above where we were in 2019. So as we look further into the summer and when you have some of these segments that tend to book more in advance than our transient business, we see some real positive signs. I think on top of that, you just look at the return to travel in places like New York City, the return to sale order for the cruise industry. You're starting to see Live Nation and some of these other venues, the opportunity for people to go somewhere and do something is also opening up as well. But those openings are going to occur in the next several months. I do think not only do we have a lot of confidence to travel, but there's going to be more places to travel and things to do for consumers. So I look at this as sort of the beginning of what I hope will be a really strong summer here. The real question will be, what then happens in the fall? I go back to these trends we're seeing. I mean if you look at our Q1 number, that weekday occupancy index number is -- it's really remarkable. And a lot of that is this ability for people to work from anywhere. And so our people taking more extended middle of the week type leisure travel, we believe that's happening. And really, the question is going to be when this return in the fall to whatever the normal is, are people still going to have the flexibility to travel at nontraditional days of the week. And I think what we're seeing in the early trends are that, that may, in fact, be the case. Dom Dragisich: Yes, Dany, the only thing I would add is from a modeling perspective, April was probably the easier comp out there. Just you hit that on the head there with regards to the return of spring break. When you think about May, June, and July last year, that's when you saw a lot of that pent-up demand returning during the pandemic, especially in the south. And so you're going to have certainly a tougher comp in May, probably an even tougher comp in June and in July. We are running some of those promotions and whatnot. So the 4% in April, 4% down versus 2019, very remarkable. But just from a modeling perspective, we do have a few tougher comps on the horizon as well. Operator: Our next question comes from Michael Bellisario with Baird. Michael Bellisario: Just want to go back to the topic of capital allocation. I think last quarter, you guys ranked M&A higher around your prior listing base. Dom, you also said it again today, higher than returning excess capital to shareholders. Does the reinstated dividend suggest you're not seeing or maybe you don't expect to see any M&A investment opportunities pop-up over the near term? Pat Pacious: I think, Michael, Dom's point is we have the ability to do it at all. I mean that capital allocation strategy has those 4 pillars to it. I think what we see the recovery of the business, the strength of our balance sheet, we have the ability to invest in our business, which we did in Q4, we did it in Q1. New prototypes, new revenue management tools, we're continuing to invest for long term. Secondarily, we do look for M&A opportunities. We know that's a challenged environment right now in the hotel sector. It's just difficult to underwrite assets and then our share -- with repurchase and dividend with regard to returning capital to shareholders. So we have the ability to sort of return to what we were doing back in February of last year. And so that's really, I think, the message that you should take away from that as far as -- it doesn't mean that we're prioritizing one over the other. All 4 give us an opportunity to improve the overall return to our investors. And so that's the portfolio of things we look at. And they move in tandem with each other. And as we're stating, we think we're at a place today we can return all 4 of those to where we were prior to the pandemic. Michael Bellisario: Got it. Understood. And then switching gears just a little bit. What are you hearing from developers regarding construction cost pressures? And are you seeing any lower interest in new construction deals from prospective owners? Pat Pacious: It's really interesting. The interest is very high, particularly with WoodSpring, with Everhome, even with our Comfort brand now that that's been returned to a growth perspective after the refresh. The issue is around lumber prices and all the transitory materials cost that we've seen. When I talk to vendors who -- some of our largest vendors, they think things will normalize in about 3 to 4 months' time. That's about the same working hypothesis that most of our developers have. And so beginning to sort of get the ball rolling on getting your application and getting a contract executed, getting your land acquired and then getting your financing, that takes time. So I think a lot of owners are expecting to get the ball rolling. And then as things move forward, hopefully 3 to 4 months from now, those construction costs come down so that the deals pencil to the types of returns they're looking for. Operator: Our next question comes from Thomas Allen with Morgan Stanley. Thomas Allen: A big macro theme is just labor shortages. What are you hearing from your franchisees in terms of that? Pat Pacious: Yes. Thomas, that's the #1 thing we hear from our franchisees is getting the labor they need into their hotels. We as a company and our franchisees in tandem with us have done a number of things during the pandemic to save on labor costs, everything from housekeeping on request to a flexible grab-and-go breakfast. These items also save on labor costs. So there are some things we've done to remove the labor cost, some of it in our franchisees, total cost of ownership. So the -- in the ability to hopefully be able to continue to run their hotels with a smaller labor force than they've had prior to pandemic. But I mean, everybody has been talking about the same thing. It's the additional unemployment insurance stimulus money that is really causing people not to return to work yet as housekeepers and the like. So again, we hope that's transitory. It extends through the month of September. So as workers begin to get closer and closer to that, we do hope it will ease up on the pressure that some of our franchisees are seeing. Thomas Allen: Pat, just a follow-up on this. When you think longer term, do you have an estimate of how much your kind of changes will help streamline the cost structure of your other hotels? Pat Pacious: Yes. We have some internal targets. I would say they're competitive in nature, so I won't speak to them, but they're significant. And it is something that we have been working on prior to the pandemic. We've been able to pull some of that forward during the pandemic and execute it earlier. And what was going to be something we piloted, we just put it out there. And I'm pleased to say in a lot of these the consumer reaction to it has been as positive as our franchisees reaction to it has been. And a lot of these also help us on the environmental front as well. So everything from not as much water and chemical usage in turn in the rooms every night to the types of things that can impact our environment going forward. So there's a really nice alignment, if you will, of lowered cost, lower environmental impact, and guest expectations are actually in alignment with that. So I think it's something that we have been working on prior to pandemic, and a lot of these are going to stay in place going forward. Operator: Our next question comes from David Katz with Jefferies. David Katz: I wanted to just get a little more insight, if I may, on the new build development activities. And the question is really in the context of the capital and the balance sheet use that the company has deployed over time. Is that new build stretching out? What are you sort of hearing and seeing? And how should we think about that curve in the next couple of years as best as we can tell? Pat Pacious: Yes, David, I think the -- as we've been talking about in the last several calls, the time it takes to do a new build has been elongated. It was first driven by the pandemic. Now I think it's going to be -- continue to be driven more by the -- both labor, FF&E and materials cost for constructing a new hotel. So as I said, what we're hearing in the marketplace is anywhere from a 3- or 4-month delay before those things hopefully, normalize. But those are the things that we're seeing as far as the elongation of -- from a contract execution to an open hotel. Dom Dragisich: And then, David, to your point on just key money distributions over the course of the last few year is, what we saw is actually that number coming down. Back in 2020 -- 2018, we were close to about $50 million; in 2019, it dropped to about $40 million; and then last year, it was about $37-or-so million distributed as well. We actually were a net recycler of capital for our Cambria portfolio in Q1 as well. So we rebought $25 million in, in terms of some of those investments that we're making. So obviously, a competitive environment, in order to get some of that revenue-intense unit growth that we were talking about, we would be more than happy to lean in a little bit on key money for the remainder of the year to get some of those projects started and accelerated. But I think the better news is, it's really the conversion engine. So when you think about those openings in Q1, over 80% of those openings came from conversions. We actually sold 25 -- or signed 25 franchise agreements in Q1 as well that actually opened in Q1, which is one of the reasons why you're seeing the phenomenon with the pipeline. It's not necessarily the best barometer of near-term, mid-term unit growth. We think that as we continue to see those conversions ramping up, we'll be able to sustain that unit growth target that we have for the company. Operator: Our next question comes from Patrick Scholes with Truist Securities. Patrick Scholes: The first question, can you tell us what your expectations are this year will be for spending on development in the Cambria brand? And where did you finish last year with that? Dom Dragisich: Yes. So what I would tell you, Patrick, is overall, we have the $725 million authorized for Cambria. Right now on our balance sheet, we have about, call it, $540 million. So a lot of it obviously depends on the pace in which some of these properties get open and which ground breaks happen. I think hitting that $725 million would actually be welcomed because that means these projects are breaking ground, so to speak. But the reality is, over the course of the next several months and year, frankly, we're going to be working within that authorization, which is the $725 million. As it pertains to broader key money, what I mentioned was last year, we were around $40 million or so deployed. We would expect to see probably pretty similar trends in 2021. Now obviously, we would be willing to lean in a little bit more, just given the fact that we certainly have the capacity that goes back to that organic unit growth story that we talked about before and the #1 priority in terms of the capital allocation hierarchy. Patrick Scholes: Okay. And then, Dom, just a kind of clarification on your prepared remarks. Did you say that you expect 2021 RevPAR to be better than 2019 on a dollar amount? Is that correct? Dom Dragisich: What we talked about was that RevPAR for the remainder of the year, so Q2, Q3, Q4, we expect to see as better in terms of the RevPAR change than the RevPAR change that you saw in Q1 of this year. Quarter... Pat Pacious: Quarter... Operator: Our next question comes from Dan Wasiolek with Morningstar. Dan Wasiolek: Just the first one with the infrastructure proposal in the U.S., any potential impact that might have on some of your segments like extended-stay or mid-scale? Pat Pacious: Yes. Those are projects that generally fill our extended-stay hotels. If you look at our broader portfolio, even beyond extended-stay, that construction segment is one of the larger segments of our business travel, and that has actually held up fairly well during the pandemic and is not too far off of where we were in 2019. So the more of those types of construction projects that get approved as a result of an infrastructure spending bill, the better. Plus, I think, overall, just improving the airports, roads, bridges, tunnels, particularly for a company like ours that is heavily dependent on domestic travel, and that's a key driver. The more investment the company or the country puts into those assets, the better off it is for productivity and for our business as a whole. Dan Wasiolek: Okay. Great. Makes sense. And then just a question, I guess, on your international brand and the recovery you're seeing there. I mean obviously, domestic is the vast majority of your business. But any comments on kind of how international brands and the recovery are doing? And what you see moving forward there? Pat Pacious: Sure. So as you stated, in 2019, it was 3% of our earnings. But as I sort of go around the world, we have a large presence in Australia and New Zealand. That market has performed quite well. They're in Ireland, both countries. And we saw in December there, some are a real record return of consumer demand. Again, they're in mostly drive to leisure markets, not too different from here in the United States. So that market has done well. When you look at what's happening in India and you look at what's happening in Japan, in particular, from a RevPAR perspective, those 2 markets are extremely challenged today. In China, we only have 7 hotels, but those 7 hotels are seeing the same type of return we're seeing in China. Europe is a different story. I mean Europe has been probably the most impacted at this point with RevPAR down significantly and hotel closures there being much higher than what we experienced here in the U.S. But I think as, again, each of these countries get to the point of where vaccinations are having an impact and where travel restrictions then begin to be lifted, you become more optimistic as you get into the third and fourth quarter for our international markets. Operator: This will conclude our question-and-answer session. I'd like to turn the call back over to Pat Pacious for any closing remarks. Pat Pacious: Thank you, operator. Thanks, everyone, again, for your time this morning. As you heard today, throughout the first quarter, Choice Hotels continued to drive the results that once again significantly outperformed the industry and our chain scale segments. And I believe the strategic investments we've made in recent years and the targeted actions we've taken during the pandemic are going to allow us to continue to grow our share of travel demand over the long term. So I hope you all stay safe and healthy, and we'll talk to you again this summer. Take care. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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Choice Hotels International, Inc. (NYSE:CHH) Sees Significant Share Sale and Receives Zacks Rank Upgrade

Choice Hotels International, Inc. (NYSE:CHH) is a prominent player in the hospitality industry, known for its wide range of hotel brands catering to various market segments. The company competes with other major hotel chains like Marriott and Hilton. On November 30, 2024, Roberta Bainum, a significant shareholder, sold 322,652 shares of CHH's common stock, which could impact investor sentiment.

Despite this sale, Choice Hotels has received a Zacks Rank #1 (Strong Buy) upgrade, indicating positive expectations for its earnings potential. This upgrade suggests that the stock might see upward movement soon, as highlighted by Zacks. Investors often view such upgrades as a sign of confidence in the company's future performance.

Choice Hotels' financial metrics provide insight into its market valuation. The company's price-to-earnings (P/E) ratio is approximately 28.18, showing the price investors are willing to pay for each dollar of earnings. This ratio is a common measure used to assess whether a stock is over or undervalued compared to its earnings.

The company's price-to-sales ratio is about 4.59, indicating how the market values its sales. Additionally, the enterprise value to sales ratio is around 5.79, reflecting the company's total valuation relative to its sales. These ratios help investors understand how the market perceives the company's revenue-generating potential.

Choice Hotels' financial structure is unique, as evidenced by its negative debt-to-equity ratio of -18.83. This could suggest a distinctive financial strategy or accounting approach. Furthermore, the current ratio of approximately 0.71 indicates the company's ability to cover its short-term liabilities with its short-term assets, which is an important measure of liquidity.

Choice Hotels International, Inc. (NYSE:CHH) Q3 Earnings Overview

  • Choice Hotels International, Inc. (NYSE:CHH) reported a Q3 revenue of approximately $428 million, slightly below estimates.
  • The company's EPS of $2.23 exceeded the Zacks Consensus Estimate, indicating growth from the previous year.
  • Despite a challenging financial structure, CHH's market valuation and earnings yield suggest it remains a viable investment in the hospitality industry.

Choice Hotels International, Inc. (NYSE:CHH) is a prominent player in the hospitality industry, known for its wide range of hotel brands catering to various market segments. The company competes with other major hotel chains like Marriott and Hilton. On November 4, 2024, CHH reported its third-quarter earnings, revealing a revenue of approximately $428 million, slightly below the estimated $434 million.

During the earnings call, key figures such as CEO Pat Pacious and CFO Scott Oaksmith provided insights into the company's performance. Despite the revenue miss, CHH reported an impressive earnings per share (EPS) of $2.23, surpassing the Zacks Consensus Estimate of $1.91. This marks a significant improvement from the $1.82 EPS reported in the same period last year, highlighting the company's growth.

The earnings call was attended by analysts from major financial institutions, including Bank of America and Morgan Stanley, indicating strong interest in CHH's financial health and strategic direction. The company's price-to-earnings (P/E) ratio of 27.10 suggests that investors are willing to pay a premium for its earnings, reflecting confidence in its future prospects.

CHH's financial metrics reveal a complex picture. The price-to-sales ratio of 4.26 and enterprise value to sales ratio of 5.46 indicate a robust market valuation relative to its revenue. However, the negative debt-to-equity ratio of -19.98 points to a unique financial structure, which may warrant further analysis by investors.

The company's current ratio of 0.71 suggests a limited ability to cover short-term liabilities with short-term assets, which could be a concern for stakeholders. Despite these challenges, CHH's earnings yield of 3.69% offers a reasonable return on investment, underscoring its potential as a solid investment choice in the hospitality sector.

Choice Hotels Gains After Terminating Plans to Acquire Wyndham

Choice Hotels International (NYSE:CHH) shares gained around 5% intra-day today after the company revealed its decision to withdraw its proposal for acquiring all outstanding shares of Wyndham Hotels & Resorts (NYSE:WH), also retracting its independent director nominations for Wyndham's 2024 annual meeting. Concurrently, Choice announced the expansion of its stock repurchase program by an additional five million shares, elevating the total to approximately 6.8 million shares available for buyback.

This development follows a series of escalated offers and concessions made by Choice in an attempt to initiate negotiations with Wyndham, starting from April 2023. Despite these efforts, Choice cited Wyndham’s Board’s apparent lack of interest in merging as the reason for discontinuing its exchange offer.

In response to this turn of events, analysts at Jefferies upgraded Choice Hotels from Underperform to Buy, indicating a positive outlook following the cessation of the acquisition efforts.