Choice Hotels (CHH): Positive Read-Throughs From Travel Surveys And Shareholder Meeting

Elevator Pitch

My rating for Choice Hotels International, Inc. (NYSE:CHH) stock is a Buy.

I drew attention to Choice Hotels’ corporate developments in my prior March 20, 2024 article. The current write-up focuses on the takeaways from CHH’s annual shareholders’ meeting and travel surveys.

The latest travel surveys point to favorable near-term prospects for Choice Hotels. On the other hand, CHH’s disclosures at the recent shareholders’ meeting indicate that the company boasts key growth engines like new traveler segment penetration and expansion into overseas markets. I continue to rate Choice Hotels as a Buy considering the read-throughs from surveys and the annual shareholders’ meeting.

Recent Travel Surveys Were Favorable

CHH’s short-term outlook is positive, taking into account recent travel surveys.

Morgan Stanley (MS) recently polled a few thousand consumers in the US on their “summer travel plans” and the findings were published in a May 15, 2024 report (not publicly available) titled “Summer Travel Preview: Cleared for Takeoff?” According to MS’ May 15 research report, 59% of the survey’s respondents intend to “take at least one trip for leisure this summer.” Furthermore, 15% and 34% of the US consumers surveyed, who have travel intentions, “expect to spend a lot more” and “spend a little more”, respectively in 2024’s summer vis-a-vis the same period last year.

Separately, MS also published another report (not publicly available) on May 28, 2024 titled “Positive Corporate Travel Survey” detailing the results of surveying “140 corporate travel managers” around the world with aggregate “spend of $5 billion.” This report indicated that “travel budgets” could increase by +6.7% YoY and +5.4% YoY in the first half and the second half of this year, respectively as per the surveyed travel managers’ responses.

Choice Hotels’ management commentary at the most recent Q1 2024 analyst call in early May also suggest that the company could perform well in the remaining quarters of this year. At the latest first quarter earnings briefing, CHH noted that it is “feeling pretty good about the trend” and “would be in the camp where April (2024) was better and not seeing a shift backwards.”

But Choice Hotels’ guidance is pretty conservative, which stands in contrast with the reasonably bullish travel surveys cited above. In specific terms, CHH anticipates that the company’s Revenue Per Available Room or RevPAR will be “flat to 2%” higher for full-year 2024 as indicated in its investor presentation slides.

My opinion is that CHH’s actual full-year 2024 RevPAR will be at the higher end of its guidance or even exceed its existing guidance, taking into account the favorable takeaways 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 (transcript sourced from S&P Capital IQ). CHH’s disclosures at this event suggests that the company has good long-term growth potential. Specifically, actions like the expansion in foreign markets and the targeting of new traveler segments are expected to boost CHH’s growth prospects for the long run.

At the shareholders’ meeting on May 16, CHH stressed that it anticipates “gaining international market share.”

In its most recent quarterly earnings press release, Choice Hotels disclosed that “the number of international rooms in the pipeline” has increased by more than 100% YoY between end-Q1 2023 and end-Q1 2024. Earlier in April this year, CHH disclosed that it entered into a deal with a French hotel operator named Zenitude to add more than 30 hospitality assets in France.

On the other hand, Choice Hotels highlighted at the shareholders’ meeting in the previous month that the “relaunch of Park Inn by Radisson” brand is focused on the “younger value-conscious traveler” that is “a growing demographic.”

A recent May 28, 2024 McKinsey article cited a survey indicating that 37% of respondents in the Gen Z group are “willing to take a cheaper flight to lower their travel cost.” This survey provides support for the assertion that the “younger value-conscious traveler” segment has a favorable growth outlook.

A May 2, 2024 media release issued by CHH indicated that the Park Inn by Radisson brand has the “potential to expand domestically.” Choice Hotels also shared at its recent Q1 2024 earnings call that “hundreds of prospective owners have expressed interest” in becoming franchisees for the Park Inn by Radisson brand.

In a nutshell, Choice Hotels’ future is bright, as the company has growth levers such as international expansion and new traveler segment penetration.

Risk Factors

There are certain risks pertaining to CHH’s prospects that investors should be aware of.

A key risk is that leisure and corporate travel demand weakens if economic conditions become unfavorable, and this has a negative impact on Choice Hotels’ future financial performance.

Another key risk is that Choice Hotels expands in certain new geographical markets and new traveler segments which don’t perform as well as what the company anticipated earlier.

Concluding Thoughts

There were positive read-throughs from the recent surveys conducted by Morgan Stanley and the company’s comments at the latest shareholders’ meeting. Also, the stock is attractively valued. CHH’s current consensus next twelve months’ normalized P/E multiple of 17.9 times represents a 20% discount vis-a-vis its 15-year average forward P/E ratio of 22.5 times based on S&P Capital IQ data. Therefore, I have chosen to maintain my Buy rating for Choice Hotels.