Fed’s Powell opens door to potential rate cuts at Jackson Hole
On Monday, Goldman Sachs analyst Lizzie Dove changed the rating for Choice Hotels International, Inc. (NYSE:CHH), moving it from ’Sell’ to ’Buy’ despite reducing the price target to $138.00 from the previous $141.00. Dove’s assessment pointed to the company’s robust franchise revenue structure and strong balance sheet as key defensive qualities in an environment marked by uncertain demand. InvestingPro data supports this view, showing an impressive 89.5% gross profit margin and a "GOOD" overall Financial Health Score.
Choice Hotels’ stock has experienced a decline of 20% since February 6th, which Dove notes is roughly consistent with the average industry decline, excluding Choice Hotels, of 25%. This performance follows the stock’s addition to Goldman Sachs’ Sell list on September 18, 2024, during which period it saw a 2% decrease, aligning with the S&P 500’s approximate 5% drop.
Despite the downgrade in rating last year, Dove acknowledged that Choice Hotels outperformed expectations, citing an underestimation of the company’s potential for ancillary EBITDA growth. This factor contributed to the decision to upgrade the stock’s rating to ’Buy’ at the current juncture.
The analyst’s commentary highlighted the stock’s resilience and the company’s ability to generate higher EBITDA growth than initially anticipated. This growth, Dove suggested, was a result of opportunities in ancillary EBITDA that had not been fully appreciated.
In summary, the adjustment of the stock’s rating by Goldman Sachs reflects a reassessment of Choice Hotels’ financial health and market position, considering the recent industry-wide downturn and the company’s defensive attributes that may position it well in the face of ongoing demand uncertainties. With analyst price targets ranging from $115.20 to $165.00, and a 22-year track record of consistent dividend payments, the stock presents interesting potential. For deeper insights into Choice Hotels’ valuation and growth prospects, including 8 additional exclusive ProTips, check out the comprehensive research available on InvestingPro.
In other recent news, Choice Hotels International reported fourth-quarter 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA) of $140 million, exceeding JPMorgan’s estimates by 6% and marking a 12% year-over-year increase. This performance was driven by higher marketing and reservation revenues, which surpassed expectations by 13%. However, the company faced higher-than-expected selling, general, and administrative expenses. Additionally, JPMorgan raised its price target for Choice Hotels to $139 from $135, though it maintained an Underweight rating. In contrast, Morgan Stanley (NYSE:MS) downgraded Choice Hotels from Equalweight to Underweight, citing competitive pressures and weaker free cash flow conversion. The firm also adjusted its price target to $129 from $145, highlighting concerns over the company’s strategy and its impact on revenue per available room (RevPAR). Meanwhile, Delta Air Lines (NYSE:DAL)’ reduction in profit guidance has cast a shadow over the travel industry, affecting companies like Choice Hotels. As these developments unfold, investors are watching closely for further impacts on the travel and hospitality sectors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.