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Choice Hotels International Inc CHH

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Morningstar’s Analysis

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Choice's U.S. Leisure-Based Hotels Continue to Lead Travel Recovery, and We See More Rebound Ahead

Dan Wasiolek Senior Equity Analyst

Analyst Note

| Dan Wasiolek |

Choice Hotels' leisure-based portfolio continued to lead the U.S. travel recovery in the third quarter, with total revenue per available room reaching 111% of 2019 levels (versus 107% for Wyndham), an improvement from last quarter’s 99% (95%). Choice guided 2021 revPAR to 101% of 2019 levels, implying that fourth-quarter revPAR will sustain at around 111% of 2019 levels. We plan to raise our fair value estimate by around 10% to account for stronger near-term demand and higher long-term travel demand supported by worker flexibility, something we see benefiting our entire accommodation coverage universe. We developed our positive stance on remote working because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support sustained remote working conditions. We see Choice shares as overvalued and now prefer narrow-moat Accor’s European exposure, with its shares at a 20% discount to our EUR 40 fair value estimate.

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Company Profile

Business Description

As of Sept. 30, 2021, Choice Hotels operated 601,776 rooms across 13 brands addressing the economy and midscale segments. Comfort Inn and Comfort Suites are the largest brands (28% of the company's total domestic rooms), while Ascend and Cambria (8% of total domestic rooms) are newer lifestyle and select-service brands experiencing strong demand prior to COVID-19. Choice added its 13th brand with the launch of extended-stay brand Everhome in January 2020. Franchises are 99% of total revenue, and the United States represents 78% of total rooms.

1 Choice Hotels Circle, Suite 400
Rockville, MD, 20850
T +1 301 592-5000
Sector Consumer Cyclical
Industry Lodging
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 1,498