Choice Hotels stock rating initiated at Underweight by Wells Fargo

Investing.com - Wells Fargo initiated coverage of Choice Hotels (NYSE:CHH) with an Underweight rating and a price target of $84.00 on Tuesday.

The financial services firm cited concerns about Choice Hotels’ free cash flow conversion, which "remains under pressure" despite the company appearing inexpensive based on EBITDA or P/E multiples.

Wells Fargo noted that Choice Hotels has "dramatically increased its spend on key money" to drive additional net unit growth (NUG), similar to competitor WH.

Unlike its competitor, however, this increased spending has only allowed Choice Hotels to "roughly maintain its level of total rooms with ~1% unit growth," according to Wells Fargo’s analysis.

The firm’s $84 price target is based on 22.5 times its 2027 estimated free cash flow of $4.09 per share, discounted back one year, with Wells Fargo emphasizing that free cash flow is "the key valuation metric in the sector."

In other recent news, Choice Hotels International Inc. reported its third-quarter earnings for 2025, showcasing a mixed performance. The company achieved a notable revenue beat, although it slightly missed earnings per share (EPS) expectations. Despite these mixed results, Choice Hotels’ stock saw a positive reaction, rising by nearly 5% in pre-market trading. This performance was influenced by international growth and strategic innovations, which contributed to a positive outlook despite challenges in the U.S. market.

Additionally, Goldman Sachs raised its price target for Choice Hotels to $144.00 from $143.00, maintaining a Buy rating. This adjustment followed the company’s earnings report, which showed a slight beat on EBITDA, partly attributed to non-recurring factors. Goldman Sachs noted that high short interest in the stock likely contributed to the outperformance. These developments highlight the company’s ongoing efforts to navigate market challenges and capitalize on growth opportunities.

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