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Summary

  • The company beat 2Q consensus on the top and bottom lines.
  • We still have a bullish thesis on the company given the rebounding economy and innovations in tech.
  • We anticipated the recent beat thanks to strong growth in its core loading business.

Choice Hotels (NYSE:CHH) posted 2Q earnings of $0.60 a share (topping $0.49 consensus) and revenues were $198 million (topping consensus of $194 million). EPS was up 11% y/y, EBITDA up 12% y/y, and strength across its entire business; franchising revenues were up 8% y/y, domestic royalty fees up 7% y/y, and domestic system-wide revenue per available room (RevPAR) was up 7.6% y/y. The company noted that the solid growth was driven by the very strong momentum in its core lodging business.

Shares are up 25% since we first covered the company back in July of last year. And since our February piece, they are up 10%. We still see fair value as $60 a share - suggesting just over 10% upside. As we noted in February,

With the help of technology innovation, Choice developed a new hotel management system, SkyTouch. It's now bringing that to that masses via SkyTouch Hotel OS. The model of SkyTouch is quite simple and intuitive. The cloud based service can help streamline check-ins and ultimately save money for hotel operators. Choice already has an installed base of over 5,550 using SkyTouch.

The company noted that it's continuing to make investments in its SkyTouch division. It now expects contracts with third-parties to hit an annualized revenue of between $4 million and $6 million.

Source: Update: Choice Hotels Earnings