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Boutique International Hotel Group (NYSE:CHH) shares are assigned a Buy investment rating. Earlier, I wrote about CHH’s 2024 financial outlook in my last update published on October 10, 2023.
This article Highlights Boutique International Hotel Group’s recent positive developments that deserve investors’ consideration. First, CHH is no longer seeking to acquire Wyndham Hotels & Resorts (WH). Second, Choice Hotels recently announced an expansion of the company’s stock repurchase program. Third, the company is expanding the footprint of its midsize extended-stay brand Everhome Suites in new markets.
Given these favorable developments, I retain a Buy rating on Select Hotels.
Pending matters related to the proposed merger and acquisition transaction have been removed
CHH previously issued a press release on October 17, 2023, revealing that it had “proposed to acquire all outstanding shares of Wyndham” Hotels and Resorts. Shares of Boutique International Hotel Group fell -6.8% It subsequently fell to a 52-week low of $108.91 in intraday trading on March 5, 2024, the day the M&A deal was announced.It is worth noting that Wyndham Hotels’ Board of Directors The transaction is not supported.
But Choice Hotels shares ended up rising +4.7% at the end of the trading day on March 5, 2024. on that day, Seeking Alpha News The report said CHH “will decide to extend or terminate the merger offer” after considering “the extent of participation in the tender offer” by WH Group.
Then March 11, 2024 Seeking Alpha News The article emphasized that CHH had “ended its hostile attempt to acquire Wyndham Hotels for $8 billion.” Sell-side analysts at Jefferies (JEF) and Baird raised their investment ratings on Choice Hotels on the day in response to the company’s planned acquisition being terminated. Notably, Choice Hotels shares rose +5.6% to close at $127.77 on March 11, +17.3% above their 52-week low.
Previously, the market may have worried that CHH might be involved in a long-term battle for control of WH at the expense of other capital allocation plans and organic growth plans. This provides an explanation for Boutique International’s previous share price weakness, which saw the stock fall to a 52-week low in early March.
Therefore, Boutique International Hotels’ decision to abandon its acquisition plan for WH Group is a positive development.
Recent buyback program expansion announcement is positive
On March 11, 2024, Boutique International Hotels announced it was “increasing the number of shares authorized under its stock repurchase program” from “5 million shares” to “6.8 million shares.”
Last year, CHH spent $366 million to repurchase 2.9 million shares of the company, leaving 1.8 million shares remaining under its stock repurchase authorization at the end of 2023. As a result, Boutique International Hotels will likely return much less capital, assuming the company continues with the WH Group deal and has set aside funds for this potential transaction, which will be provided to shareholders through stock buybacks this year.
Now, it’s clear that with the potential Wyndham Hotels acquisition closing, the company is focusing its attention on other accretive capital allocation opportunities.
Choice Hotels expects its normalized earnings per share, or earnings per share, to grow +5.6% from $6.11 in fiscal 2023 to $6.45 in fiscal 2024 (mid-point of guidance). CHH pointed out in its fourth quarter 2023 financial report that its fiscal 2024 guidance did not take into account the impact of “additional repurchases of company stock” and other factors. In other words, if Boutique International Hotels buys back more of its own stock under its expanded stock buyback program, there could be room for upside in actual earnings performance this year.
Growth potential of new brands draws attention
In early March this year, Choice Hotels issued a media press release, disclosing that “Everhome Suites has opened in Newnan, Georgia, marking the midscale extended-stay brand’s debut on the East Coast.”
Everhome Suites Brand Overview
Permanent residence suite brand fact sheet
Everhome Suites is the latest brand added by the company in early 2022, and it has huge growth potential.
The total number of units in CHH’s portfolio increased by +1.8% in 2023, with unit count growth in the extended stay segment much better +14.9% in the previous year. Looking ahead, Boutique Hotels International expects its extended-stay hotel business to grow at a unit CAGR of +15% during fiscal 2024-2028, based on management comments in its fourth-quarter 2023 earnings briefing.
In addition, hotel companies Accor (OTCPK:ACRFF) (OTCPK:ACCYY) on its Article January 31, 2024 “With the emergence of remote and hybrid work models, more and more professional travelers” “want to stay longer in their destinations,” according to a release on its website. In this late January article, Accor Research firms are also quoted Future market insights’ It is predicted that the global extended stay hotel market will expand at a very strong compound annual growth rate between 2023 and 2033, reaching the youth percentage level. This supports CHH’s growth objectives related to its extended stay segment.
I think Boutique Hotels International will likely allocate more capital to organic growth opportunities, such as expanding the presence of its midsize extended-stay brand Everhome Suites in the future. With the Wyndham hotel deal now complete, CHH can devote more time and energy to realizing its full organic growth potential.
final thoughts
CHH’s current consensus is for a forward 12-month normalized EV/EBITDA multiple of 13.8x, which is 14% below the historical average EV/EBITDA multiple (Source: S&P Capital IQ) over the past ten years. I believe Choice Hotels can trade at higher EV/EBITDA metrics in the future, approaching or even exceeding its historical averages, when the market pays more attention to its favorable developments.
