Why Choice Hotels Shares Were Getting Rejected


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Choice Hotels were getting picked last by investors today, falling 11% after cutting EPS guidance in its quarterly report.

So what: The first-quarter results for the owner of Comfort Inn, Quality Inn, and Econo Lodge actually weren't bad. Choice missed EPS estimates by a penny, delivering earnings of $0.26, while revenue topped expectations by 1.5%, growing 6% to $136.9 million. Still, guidance for the coming year was disappointing, though management didn't offer an explanation for the cut. It now sees EPS of $1.87 to $1.91 versus an earlier projection of $1.96 to $1.98.

Now what: While a guidance cut is almost always met with a sell-off, there was some good news in Choice's report. First, a rough extrapolation of revenue guidance for the year indicates that it should come out ahead of estimates, and second, the company added 83 new domestic hotel franchise contracts in the previous quarter, 30% better than the quarter a year ago. That addition would seem to indicate that long-term growth shouldn't be a problem. A P/E of 20 may be a little high for a company growing this slowly, but I wouldn't get overly agitated over the guidance cut.

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The article Why Choice Hotels Shares Were Getting Rejected originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of Choice Hotels International. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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