Shares of Choice Hotels International Inc. surged to their highest level in company history yesterday, buoyed by the company’s announcement that it added more than 40,000 new rooms to its portfolio.
The Silver Spring-based hotelier, which owns franchises under eight brand names including Comfort Inn, Sleep Inn, Clarion and Econo Lodge, said it signed 470 new contracts last year. Choice said it would likely earn between $1.82 and $1.84 per share for the year, up from its previous estimate of between $1.80 and $1.82.
Shares rose 30 cents to close at $38.95, on the New York Stock Exchange, their highest price ever. Shares have risen $3.60, or 10.2 percent, since the beginning of the year.
Choice has managed to add franchises in part because of the widespread use of the Internet in hotel bookings, said Joe Squeri, the company’s chief financial officer. Independent hotel operators have struggled to get their hotels prominently listed on travel Web sites like Expedia and Travelocity, he said, and are now more willing to become franchises under the Choice name.
“We have a very aggressive sales organization,” Mr. Squeri said. “[Prospective franchises] must have liked what they heard. It helps to be affiliated with someone who knows how to get your name out.”
Mr. Squeri said Choice has rebounded from the post-September 11 travel slump, and did not see a significant decline in occupancy after the Department of Homeland Security raised the nation’s terror alert last month. He said that because about 75 percent of Choice’s customers drive to their destination rather than fly has meant the company is relatively immune to any fears relating to air travel.
Choice also benefits from the fact it its hotels are franchise-owned, so the effect of a drop in travel does not hit the company directly, Mr. Squeri said. About half of the company’s revenue comes from franchise royalty fees, which have not declined in recent years, even after the events of September 11.
Some analysts said that despite the company’s growth in franchises, shares may be overpriced because the occupancy rate of most hotels has not increased.
In its last quarterly-earnings report in October, Choice reported that about 64.8 percent of the company’s rooms were filled, compared to 65.7 percent from the comparable quarter the year before. Revenue per available room dropped from $43.79 to $43.44.
Other analysts said the price of Choice shares is fair, given the company’s overall growth.
“Even though the share price has had a steady run and is at a high, given the economic returns of the business it is certainly not expensive,” said Mark Abramson, an analyst with Bear Stearns, who does not own shares of the company.
Figures from the Travel Industry Association of America, suggest Choice executives have reason for optimism. The TIAA said demand for hotel and motel rooms rose 3.9 percent in 2003, with occupancy rates increasing 2.8 percent.
Choice reported net income of $24.3 million, or 66 cents per share for the third quarter of 2003, up from $21.9 million, or 54 cents per share, for the comparable quarter in 2002. The company will report fourth-quarter and year-end results on Feb. 12.
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