Choice Hotels Above Consensus; Buy Rating Maintained

Choice Hotels International

reported 3Q results that were “above our and consensus estimates,” Citigroup reports. Underlying REVPAR fundamentals are tracking ahead of Citigroup's expectation, but the EPS beat was driven by non-operating items -- lower taxes, higher interest income and a shift in G&A to 4Q from 3Q. “REVPAR +7.4% vs. our +6.0% estimate; guidance for 4Q of 7-8% is also above our 5% assumption,” Citigroup writes. “The unit pipeline continues to contract and high-margin initial and re-licensing fees remain depressed, but should begin to rebound as transactions accelerate (conversion oppty's).” Citigroup maintains its Buy rating based on reasonable valuation (~21x 2011 EPS vs. L-T avg. of 19x), what should be an acceleration of REVPAR growth in 2011-12, a pristine balance sheet and an attractive fee based biz model. Choice Hotels International currently trades for $36.31.