Thomas Barwick
Elevator pitch
My review for Choice Hotels International Company (New York Stock Exchange: CHH) Buy the stock.
I drew attention to Choice Hotels’ corporate developments in my previous article dated March 20, 2024. The current writing focuses on takeaways from CHH Annual Shareholders’ Meeting and Travel Surveys.
The latest travel surveys indicate favorable near-term prospects for Choice Hotels. On the other hand, CHH’s disclosures at its recent shareholders meeting indicate that the company boasts key growth drivers such as penetration of the new traveler segment and expansion into overseas markets. I continue to rate Choice Hotels as a Buy taking into account readings of surveys and the annual shareholder meeting.
Recent travel surveys have been favourable
CHH’s short-term outlook is positive, taking into account recent travel surveys.
Morgan Stanley (MS) recently surveyed a few thousand US consumers about their “summer travel.” Plans” and the findings were published in a report dated May 15, 2024 (not available to the public) entitled “Summer Travel Preview: Cleared for Takeoff?” according to Ms’ A May 15 research report said that 59% of survey respondents intend to “take at least one leisure trip this summer.” Furthermore, 15% and 34% of US consumers surveyed with travel intentions “expect to spend more” and “spend a little more,” respectively, in the summer of 2024 compared to the same period last year.
separately, Ms He also published another report (not publicly available) on May 28, 2024 titled “Positive Corporate Travel Survey” detailing the results of a survey of “140 corporate travel managers” around the world with a total of “$5 billion in spending.” This report indicated that “travel budgets” could increase by +6.7% YoY and +5.4% YoY in the first half and second half of this year, respectively, according to responses from the travel managers surveyed.
Choice Hotels management’s comments on its most recent Q1 2024 analyst call in early May also suggest the company could do well in the remaining quarters of this year. In its latest Q1 earnings briefing, CHH noted that it “feels good about the trend” and “will be in the camp where April (2024) was better and will not see a turnaround.”
But Choice Hotels’ guidance is very conservative, which contradicts the reasonably bullish travel surveys mentioned above. In specific terms, CHH expects the company’s revenue per available room, or RevPAR, to be higher by “flat to 2%” for the full year of 2024 as described in its investor presentation slides.
My view is that CHH’s 2024 actual RevPAR will be at the high end of its guidance or even exceed its current guidance, considering the positive results from recent travel surveys.
Key growth drivers were highlighted at the latest shareholders meeting
In the middle of last month, Choice Hotels hosted its annual shareholders meeting (source text: Standard & Poor’s Capital IQ). CHH’s disclosures at the event indicate that the company has good long-term growth potential. Specifically, actions such as expansion into overseas markets and targeting new segments of travelers are expected to enhance CHH’s long-term growth prospects.
At a shareholders’ meeting on May 16, CHH confirmed that it expects to “gain international market share.”
In its latest quarterly earnings press release, Choice Hotels revealed that the “number of international rooms in the pipeline” had increased more than 100% year over year between the end of the first quarter of 2023 and the end of the first quarter of 2024. Earlier in April of this year CHH revealed that it has struck a deal with a French hotel operator called Zenitude to add more than 30 hospitality assets in France.
On the other hand, Choice Hotels had highlighted at its shareholder meeting the previous month that its “relaunch of the Park Inn by Radisson brand” was focused on the “younger, value-conscious traveler” who represents a “growing demographic.”
May 28, 2024 recently Mackenzie The article cited a survey indicating that 37% of respondents in the Generation Z group are “willing to take a cheaper flight to lower the cost of their travel.” This survey provides support for the assertion that the “value-conscious younger traveler” segment has a positive growth outlook.
A CHH media release dated May 2, 2024 noted that the Park Inn by Radisson brand has “the potential to expand locally.” Choice Hotels also shared in its recent Q1 2024 earnings call that “hundreds of potential owners have expressed interest” in becoming franchisees of the Park Inn by Radisson brand.
In short, the future for Choice Hotels is bright, as the company has growth levers such as international expansion and penetrating a new segment of travellers.
Risk factors
There are some risks to CHH’s prospects that investors should be aware of.
The main risk is that demand for leisure and corporate travel will weaken if economic conditions become unfavourable, and this has a negative impact on Choice Hotels’ future financial performance.
Another key risk is that Choice Hotels expands into some new geographic markets and new traveler segments that do not perform as well as the company previously expected.
Concluding thoughts
There have been positive readings from recent surveys he has conducted Morgan Stanley And the company’s comments at the recent shareholders meeting. The stock value is also attractive. CHH’s current consensus for a forward 12-month normalized P/E of 17.9x represents a 20% discount versus the average forward 15-year P/E of 22.5x based on Standard & Poor’s Capital IQ Data. Therefore, I have chosen to maintain my Buy rating for Choice Hotels.
