Skift Take
Choice Hotels’ attempt to merge with Wyndham fell through this year. Now we’re left with two slightly bruised contenders circling each other in the ring.
Since Choice Hotels’s attempt to merge with rival Wyndham Hotels & Resorts collapsed earlier this year, the two companies have competed to win deals from developers and grow their footprints, average daily rates, and franchisee fees at faster paces.
Goldman Sachs has begun covering the companies, issuing a report that compared the companies’ prospects.
As a refresher: Wyndham and Choice have brands at all price points, but they are the strongest hotel groups in the U.S. economy and midscale space. Choice claimed a 16% share of the branded U.S. economy hotel market last year, while Wyndham had 36%.
Here are highlights of what research analysts Lizzie Dove, Ian Athmann, and Ryan Davis like and dislike about the two hotel group competitors.
Wyndham Strengths
- Accelerating unit growth: The report forecasts room growth accelerating from 3.5% in 2023 to roughly 4% across 2024 and 2025, driven by the development of its new Echo Suites extended-stay brand, improving franchisee retention and international growth. Wyndham is capitalizing on the expected $1.5 trillion infrastructure investment in the U.S., which may drive demand for its three extended-stay brands.
- Few surprises are expected: The analysts believe it will be able to meet its goals for revenue per available room in the second half of 2024.
- Upside opportunities: The report sees potential from development of its newest Echo Suites brand.
- Economy segment improvement: Recent results have shown sequential improvements for the economy chain scale, a key segment for Wyndham.
- Resilience in economic downturns: Historically, Wyndham has outperformed higher chain scale segments during economic downturns.
- More upselling: Wyndham has heavily invested in technology, with a $275 million investment in partnerships with Oracle, Amazon Web Services, Salesforce, and IDeaS. This tech is enabling owners to offer more items for sale, such as early check-in.
Wyndham Weaknesses
- Facing pressure: Earlier this year, Wyndham reset its full-year guidance lower, indicating some near-term strain on revenue per available room.
Choice Hotels Strengths
- Strong brand portfolio: Goldman’s analysts noted that Choice Hotels operates across a variety of chain scales, with a majority of rooms in the midscale/upper midscale segment that command higher rates and thus generate higher fees per room on average.
- Historical performance: The report notes that Choice Hotels has historically traded at a premium to Wyndham even though, in terms of room count, Wyndham is roughly a third larger.
Choice Hotels Weaknesses
- Risk of revision to forecasts: The analysts believe Choice’s management may have been too rosy in issuing their 2024 and 2025 guidance for performance for this year and next as economic turbulence may have pressured their rate and occupancy growth.
- The easy wins are won: The report suggests the setup for 2025 looks difficult as Choice has already gotten the benefit from its acquisition of the Radisson hotel portfolio in the Americas.
- Net unit growth concerns: The analysts are cautious about Choice’s 2024 guidance for domestic net unit growth of about 2%, modeling only 1% growth.
- Underperformance vs. industry: Choice’s US RevPAR growth has been underperforming its respective mix of chain scales, as averaged by data firm CoStar, for about a year.
The Bottom Line
Goldman Sachs analysts say Wyndham has more short-term chances for growth in its footprint and revenue than Choice Hotels. But if either one makes a significant acquisition, all bets are off.
Overall, the report presents a more positive outlook for Wyndham than Choice Hotels, but it represents only one perspective.
Analysts at Truist and Oppenheimer have recently written flattering reports about Wyndham, while Stifel has written favorably on Choice. Stock investors have been favoring Choice for a couple of years.
