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Choice Hotels' (CHH) Expansion Strategy to Drive Growth

20 Dec 2018 - It has been a tough year for Hotels and Motels industry. In fact, the industry has witnessed a sharp decline of 25.7% so far this year. However, Choice Hotels International, Inc.CHH , which belongs to the same industry, has decreased significantly lower by 6.7%.

Enhancement of mid-scale brand, acquisition of WoodSpring and transformation of the Comfort and Cambria brand bode well for the company. Moreover, the Zacks Rank #2 (Buy) company's VGM Score of B and positive estimate revision in the past 60 days indicates that the stock has solid growth potential.

Hidden Catalysts

Choice Hotel's riveting growth potential is grounded in the continual expansion of brands. In fact, its portfolio of well-segmented brands is getting palpably stronger. Choice Hotels relies heavily on expansion in both domestic and international markets. Apart from constant franchise expansion, the company recently added 239 new extended-stay hotels in 35 states to its portfolio through the buyout of Woodspring Suites.

The company anticipates a total of 250 Woodspring hotels by the beginning of 2019. In the first nine months of 2018, Choice Hotels opened 11 WoodSpring hotels in top markets like Chicago, Seattle, Charlotte and Detroit, and growth is expected to accelerate in 2019. Moreover, in the fourth quarter, the company finalized an agreement with a developer to build more than 20 additional WoodSpring Suites over the next four years. Net domestic unit growth for 2018 is expected to be 7-8%.

Meanwhile, management continues to expand its international footprint in new countries alongside domestic growth. In April, the company announced a strategic alliance with Sercotel, a leading hotel operator and franchisor based in Spain. This alliance will enable Choice Hotels to expand its presence in Spain and other markets, and also aid in the creation of opportunities for additional hotel development across Europe and Latin America. The expansion can also be viewed as Choice Hotels' strategy to counter intense competition from the likes of Marriott MAR and Hilton HLT.

Further, the company's solid commitment toward franchisee profitability is driving incremental revenues. In the first nine months of 2018, hotel franchising revenues increased 11.9% year over year. New construction domestic franchise agreements in the third quarter of 2018 also increased 37% from the year-ago quarter.