Company Name: Choice Hotels
Entry Price: $87
Target Price: $105
Projected Yield: 15%
Time Line: 3 to 6 months
About Choice Hotels
Choice Hotels is one of the world's largest franchised hotel chains, which includes over 7,000 hotels. Most of them are located in the United States, while only 20% is distributed among 40 other countries. The company has 11 hotel brands with various service levels.
What's the Idea?
Capitalize on the stock that may rise with gradual economic recovery and a business model that is appropriate to the current conditions.
Buy Choice Hotels Shares >>
Why Trade Choice Hotels?
Reason 1: Business Model Success Amidst the Lockdown
Due to the convenient location of the hotels for tourists and car owners, the chain has faced an increased demand after the pandemic arrived. Over 4,000 Choice Hotels facilities in the United States are located within a mile of the interstate highway exits. In Q2 2020, the suburban hotel occupancy rate was at 61%, while for WoodSpring Suites extended stay hotels it was 69%; at the same time, the industry average is below 40%.
Choice Hotels earnings per room available in Q2 2020 amounted to $51.11, which came higher than the competition ($17.31 for Wyndham Hotels and $15.56 for Marriott International). The occupancy rate was at least 31.40%, with an average of 42.70%, the highest in the industry (compared to 14% in Marriott). This trend will continue, as the demand for tourist travel recovers faster than the one for business travel.
More than 90% of Choice Hotels in the US and 96% overseas operate as usual. Meanwhile, Choice Hotels considers it necessary to maintain liquidity, for which the company borrowed $314M, against $34.40M a year before. This will ensure temporary loss coverage in case the pandemic breaks out further.
The company is recovering faster than the competition: the earnings are stable, while the capital costs are lower.
Reason 2: Economic Recovery
According to the American Association of Hotels and Inns, the hotel occupancy rate increased in the US from 24.50% in April to 48.80% in August, while for most of 2019, this it was at about 70%. The opinion polls show that only 33% of US people went on vacation since March 2020, with 70% before the pandemic. In mid April and mid August, the greatest demand was for suburban hotels, as well as hotels on state lines. City hotels and resort hotels are still in the least demand. The situation is tough, but the potential for operational growth remains high, which makes this industry attractive for investments.
The economic recovery opens up more rising opportunities for Choice Hotels stock, as it outperforms most of its competitors. After the prices fell massively in February and March, the trend started ascending. The price is now near the lower boundary of this uptrend, which looks like a good point to buy in the long term. The price has not yet hit the February high, but it could well do, after the Q3 2020 report has been released.
How to Use the Idea
- Buy Choice Hotels stock at $87.
- Allocate no more than 2% to 4% of your portfolio amount. To build a balanced portfolio, you can use our analysts' recommendations for USD or EUR portfolios.
- Sell the stock when the price is at $105 per share.
How to Buy Choice Shares?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: In the Web Terminal section, type CHH.US (Choice Hotels ticker in the NYSE) in the search box, and select Choice Hotels International Inc. in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the dialog that will show up, type CHH.US (Choice Hotels ticker in the NYSE) and select Choice Hotels International Inc. in the results. You will then see Choice Hotels stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy Choice Hotels stocks and capitalize on the recovering hotel industry!
Buy Choice Hotels Shares >>
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