Contrasting Extended Stay America (STAY) and Choice Hotels International (CHH)

Choice Hotels International (NYSE: CHH) and Extended Stay America (NYSE:STAY) are both mid-cap consumer discretionary companies, but which is the superior investment? We will compare the two companies based on the strength of their risk, valuation, earnings, profitability, analyst recommendations, dividends and institutional ownership.

Insider and Institutional Ownership

50.8% of Choice Hotels International shares are held by institutional investors. Comparatively, 98.5% of Extended Stay America shares are held by institutional investors. 22.0% of Choice Hotels International shares are held by company insiders. Comparatively, 0.6% of Extended Stay America shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Earnings and Valuation

This table compares Choice Hotels International and Extended Stay America’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Choice Hotels International $924.64 million 4.76 $139.37 million $2.70 28.81
Extended Stay America $1.27 billion 2.62 $69.93 million $0.39 44.33

Choice Hotels International has higher earnings, but lower revenue than Extended Stay America. Choice Hotels International is trading at a lower price-to-earnings ratio than Extended Stay America, indicating that it is currently the more affordable of the two stocks.

Dividends

Choice Hotels International pays an annual dividend of $0.86 per share and has a dividend yield of 1.1%. Extended Stay America pays an annual dividend of $0.84 per share and has a dividend yield of 4.9%. Choice Hotels International pays out 31.9% of its earnings in the form of a dividend. Extended Stay America pays out 215.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Choice Hotels International has raised its dividend for 3 consecutive years and Extended Stay America has raised its dividend for 2 consecutive years.

Profitability

This table compares Choice Hotels International and Extended Stay America’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Choice Hotels International 15.66% -60.41% 17.42%
Extended Stay America 5.83% 14.53% 4.74%

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Choice Hotels International and Extended Stay America, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Choice Hotels International 1 4 1 0 2.00
Extended Stay America 0 1 6 0 2.86

Choice Hotels International presently has a consensus target price of $66.40, indicating a potential downside of 14.65%. Extended Stay America has a consensus target price of $20.75, indicating a potential upside of 20.01%. Given Extended Stay America’s stronger consensus rating and higher possible upside, analysts clearly believe Extended Stay America is more favorable than Choice Hotels International.

Volatility and Risk

Choice Hotels International has a beta of 1.17, indicating that its stock price is 17% more volatile than the S&P 500. Comparatively, Extended Stay America has a beta of 0.97, indicating that its stock price is 3% less volatile than the S&P 500.

Summary

Choice Hotels International beats Extended Stay America on 10 of the 17 factors compared between the two stocks.

About Choice Hotels International

Choice Hotels International, Inc. is a hotel franchisor. The Company’s segments include Hotel Franchising, SkyTouch Technology and Corporate & Other. It franchises lodging properties under brand names, including Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Extended Stay Hotel, Cambria hotels & suites, and Ascend Hotel Collection. The Company had 6,514 hotels open and 775 hotels under construction, awaiting conversion or approved for development, as of December 31, 2016, representing 516,122 rooms open and 62,547 rooms under construction, awaiting conversion or approved for development in 50 states, the District of Columbia and over 40 countries and territories outside the United States. Its domestic franchising operations are conducted through direct franchising relationships, while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships.

About Extended Stay America

Extended Stay America, Inc. is a owner/operator of company-branded hotels in North America. The Company operates in the extended stay lodging industry. The Company owns and operates approximately 700 hotel properties consisting of approximately 75,900 rooms located in 44 states across the United States of America and in Canada. The Company owns and operates hotels under the core brand, Extended Stay America. In addition, the Company owns and operates three Extended Stay Canada hotels, 49 hotels in the economy extended stay segment under the Crossland Economy Studios and Hometown Inn brands, and also manage two Extended Stay America hotels.

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