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Choice Hotels International Inc CHH

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Morningstar’s Analysis

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Economic Moat




Choice Experiencing Meaningful Outperformance in 2020; Long-Term Brand Advantage Intact

Dan Wasiolek Senior Equity Analyst

Analyst Note

| Dan Wasiolek |

Choice’s second quarter offered a plethora of data supporting our view that the company’s U.S. drive-to portfolio (nearly 90% of U.S. hotels are suburban, small town, and off-interstate) is positioned to outperform peers in 2020 and that its brand intangible asset (the source of its narrow moat) is firmly intact. Choice’s U.S. revenue per available room, or revPAR, declined 50% versus a 51% decline for narrow-moat Wyndham and the mid-70% to high-80% range reported by higher-rate competitors. Choice’s outperformance is occurring throughout its portfolio, with its revPAR 565 basis points higher than direct hotel comparables since mid-March. Meanwhile, with Choice noting its July revPAR declined just 33%, we don’t expect to meaningfully alter our 2020 revPAR estimate for a 31% decline. Further, we don’t plan a material change to our $87 fair value estimate, leaving shares slightly undervalued.

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Company Profile

Business Description

Choice Hotels operates 597,000 rooms across 13 brands addressing the economy and midscale segments. Comfort Inn and Comfort Suites are the largest brands (27% of the company's total domestic rooms), while Ascend and Cambria (6% 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 Jun 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 1,807