We recently published a list of 10 Best Hotel Stocks To Buy Now. In this article, we are going to take a look at where Choice Hotels International, Inc. (NYSE:CHH) stands against other best hotel stocks.
According to Cognitive Market Research, the size of the global hotel market was $784.82 billion in 2023 and is projected to grow to $1,126.04 billion by 2030. From 2023 to 2030, the hotel industry’s compound annual growth rate is anticipated to be 5.29%. Regionally, North America holds a substantial 30.66% market share, mostly because of the region’s abundance of hotels and resorts.
Recently, in Q2 2024, demand for hotels rose 1.3% year over year, above a 0.6% increase in supply and leading to a 0.7% increase in occupancy in the US. Secondly, a 2.2% year-over-year rise in Q2 2024 revenue per available room (RevPAR) was driven by higher occupancy combined with a 1.5% increase in average daily rate (ADR) YoY. The benefits were mostly due to two factors: the early Easter this year, which came in late Q1 2024 and contributed to higher business travel in the second quarter of this year compared to the previous year, and the complete solar eclipse, which encouraged more leisure travel throughout a significant portion of the US. Although the demand for hotels increased in the second quarter of 2024, short-term rentals and cruise lines maintained their market share gains. Additionally, the average hotel hourly wage was still more than $10 less than the average hourly wage in the country.
As per Frederic Dominioni, the Chief Revenue Officer of Solonis and a leading provider of modern property management solutions, there are five important trends driving the recovery in the hotel industry post-pandemic. Firstly, guests’ expectations are rising because of rising room rates, which increased by 54% from January 2022 to 2023. Secondly, the rise in “workcation” travels brought about by hybrid work has raised the need for flexible locations and services. Third, there is still a high desire for self-service choices and mobile technology, which helps to ease the staff shortage. Fourth, with 88% of travelers looking for local adventures, travel experiences have taken center stage. Lastly, given that 65% of travelers give priority to eco-friendly lodging, sustainability is essential. Hotels will prosper if they adjust to these developments through improving amenities and customizing visitor experiences.
Looking ahead, CBRE’s 2024 Global Hotels Outlook reveals that 2024 will be another year of progress for the US economy after 2023 saw RevPAR reach a record high. The continuous improvement in inbound foreign travel, the meetings and group events segment’s solid performance, and rising interest from leisure visitors are all expected to contribute to RevPAR growth, which is predicted to reach almost 3% year over year. Urban areas that are more appealing to leisure travelers and have more expensive hotels should do well, but competition from other sources, such as cruise lines, short-term rentals, and camping, is projected to restrict demand as well as pricing for traditional hotels. Hotel salary growth slowed to 4.6% in Q2 2024 from 5.5% in Q1, but it was still higher than the 4.0% hourly wage rise for all employees due to a decrease in job opportunities in the hotel industry. In Q2 2024, occupancy rates for all types of locations stayed below 2019 levels. Interstate and town sites were the most similar to their 2019 levels, at 99%, while urban and resort destinations were 94% and 96%, respectively.
On the other hand, Warren Marr, US Hospitality & Leisure Industry Advisor stated:
“Continued economic uncertainty, an upcoming election, and continued geopolitical tensions are expected to impact hotel performance in the US through 2025. Since our last issue of Hospitality Directions US in November, we’ve seen two additional quarters of decline in hotel occupancies, for a total of four, but expect to see a gradual rebound the balance of this year and into next, off of easier comps. That said, we expect average daily rate growth to trail PCE inflation through the rest of this year and 2025.”
With that said, here are the 10 Best Hotel Stocks To Buy Now.
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A hotel lobby in vibrant colors, reflecting the hospitality and global presence of the hotel franchising company.
Choice Hotels International, Inc. (NYSE:CHH)
Number of Hedge Fund Holders: 20
Choice Hotels International, Inc. (NYSE:CHH), one of the world’s leading lodging franchisors, catered to the economy and midscale segments with 15 brands and 633,000 rooms as of December 31, 2023. The company’s two biggest brands, Comfort Inn and Comfort Suites, account for 27% of all domestic rooms. Ascend and Cambria, on the other hand, represent 7% of all domestic rooms and are newer lifestyle and select-service brands.
In August 2022, Choice completed the acquisition of Radisson, adding almost 70,000 new rooms. Franchises generate 100% of total revenue, while the United States accounts for 79% of all rooms in 2023.
The company’s 2020 demand was significantly impacted by the coronavirus, but in 2021, the company’s US leisure-based portfolio—which accounts for around 70% of nights—saw a complete return to 2019 revenue per available room level.
Morningstar analysts expect the company to gradually expand room share in the hotel industry over the next ten years, with its keys boosting 2% on average every year, above the 1%-2% supply lift they estimate for the US industry during that time, even though near-term demand is under pressure due to declining consumer savings. A revived Comfort brand (27% of all domestic rooms in 2023) is one factor supporting this growth, along with the addition of the newer Cambria, Ascend, and Everhome concepts (7% combined), its extended-stay brand WoodSpring (6%), the 2022 acquisition of the Radisson brand, and a strong loyalty program with 66 million members as of June 30, 2024 (up from 44 million in 2019).
Strong Q2 2024 financial results were released by the firm, showing a 6% YoY increase in adjusted EBITDA and a 5% YoY increase in adjusted EPS to a record $161.7 million. While global hotel openings rose by 20% YoY, the company’s global pipeline grew by 22% YoY to 115,000 rooms. Choice Hotels International, Inc. (NYSE:CHH) is well-positioned for upcoming potential markets and, although decreasing its RevPAR projection, anticipates 9% adjusted EBITDA growth for 2024, driven by franchise fees and unit expansion.
Terry Smith’s Fundsmith LLP is the largest shareholder in the company, with 733,892 shares worth $87.33 million.
Overall, CHH ranks 10th on our list of Best Hotel Stocks To Buy Now. While we acknowledge the potential of CHH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CHH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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