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On Wednesday, JPMorgan analyst Joseph Greff updated the firm’s outlook on Choice Hotels International, Inc. (NYSE:CHH), raising the price target to $139.00 from the previous $135.00. Despite the price target adjustment, the analyst retained an Underweight rating on the stock. According to InvestingPro data, the stock currently has a market capitalization of $6.78 billion and trades with notably low price volatility, making it an interesting consideration for stability-focused investors.
Choice Hotels reported their fourth quarter 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA) at $140 million, surpassing JPMorgan’s estimate by 6% and marking a year-over-year growth of 12%. This performance was attributed to higher marketing and reservation revenues, which exceeded the firm’s expectations by 13%, and Owned Hotel revenues, which were 12% above estimates. Franchise revenues also slightly outperformed estimates. However, these were partially offset by higher-than-expected selling, general, and administrative (SG&A) expenses, as well as Owned Hotel expenses.
The company’s marketing and reservation expense deficit was notably lower than anticipated, coming in at $18 million against a forecasted $35 million. This remaining balance is expected to roll over into 2025. Domestic revenue per available room (RevPAR) saw a 4.5% increase year over year, beating JPMorgan’s estimate and with management citing hurricane-related business as a contributing factor. Additionally, Choice Hotels’ end-of-period domestic room count significantly outpaced expectations, growing 3% year over year due to the addition of 14,000 rooms from its Westgate partnership.
Looking forward, JPMorgan forecasts Choice Hotels’ EBITDA for 2025 to reach $629 million, a 4% year-over-year increase, which sits just below the midpoint of the company’s guidance range of $625 million to $640 million. The firm anticipates Domestic RevPAR growth of 1.3% year over year and a modest domestic franchise net rooms growth of 0.4% year over year, generating Royalties of $535 million, up 4% year over year. For 2026, JPMorgan projects an EBITDA of $648 million, slightly below the consensus estimate of $653 million, driven by Domestic Franchise RevPAR growth and domestic franchise net rooms growth, resulting in Royalties of $552 million.
The new December 2025 price target is based on a 12.5x 2026 enterprise value to EBITDA (EV/EBITDA) multiple, a slight decrease from the previously used 13.0x 2025E EV/EBITDA multiple. JPMorgan considers this target multiple fair, given Choice Hotels’ below-peer net footprint growth. The firm maintains its Underweight rating, suggesting that Choice Hotels may underperform relative to its peers considering the current share price levels and net rooms growth dynamic. The company’s stock is currently trading at 13.7x 2025E EV/EBITDA and 13.1x 2026E EV/EBITDA according to the analyst’s comments. InvestingPro analysis shows the company has maintained dividend payments for 22 consecutive years, with a current P/E ratio of 28.21x. For deeper insights into Choice Hotels’ valuation and growth prospects, including exclusive financial health scores and detailed metrics, investors can access the comprehensive Pro Research Report, available to InvestingPro subscribers.
In other recent news, Choice Hotels International, Inc. has experienced notable developments. Morgan Stanley (NYSE:MS) downgraded the company’s stock from Equalweight to Underweight, adjusting the price target to $129.00 from $145.00. This downgrade was attributed to competitive pressures and weaker free cash flow conversion, as well as the company’s struggle to maintain development share against larger competitors. Analysts at Morgan Stanley expressed concerns about Choice Hotels’ strategy, which has led to underperformance in Revenue Per Available Room (RevPAR) compared to its peers. Additionally, the company’s valuation multiples were revised to reflect these challenges, with an anticipated downside to the new 12-month price target.
In another significant update, Robert McDowell, the Chief Commercial Officer of Choice Hotels, will be leaving the company effective January 15, 2025. His departure was announced in a recent SEC filing, although no successor has been named yet. This executive change comes as the company continues to navigate the evolving hospitality landscape post-pandemic. Stakeholders are keenly observing how Choice Hotels will manage this transition and maintain its commercial strategy momentum.
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