Choice Hotels (CHH) AI Stock Analysis

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Choice Hotels

(NYSE:CHH)

60Neutral

Choice Hotels demonstrates robust operational and earnings performance, particularly in expanding its global footprint and enhancing profitability. However, high financial leverage and a challenging development environment pose risks to its financial stability. Technical analysis indicates bearish momentum, while valuation metrics suggest a fair but not compelling investment case.

Positive Factors

EBITDA Performance

CHH slightly outperformed the market and lodging coverage after delivering a beat and raising the midpoint of its EBITDA guide.

Pipeline Potential

CHH's pipeline could potentially lead to significant increases in gross fees, providing a possible upside.

Revenue Growth

Ancillary revenues through the Radisson integration added incremental EBITDA in Q3, with expectations for continued contribution in Q4 and through 2025.

Negative Factors

Free Cash Flow

Weaker FCF conversion remains a concern as the company deploys more capital to support its move upstream.

Net Rooms Growth

CHH's net rooms growth has historically lagged behind its peers, suggesting a potential weakness in expansion strategy.

Valuation Concerns

CHH's current 14x EV/EBITDA valuation seems disconnected vs. its modest EBITDA growth outlook.

Choice Hotels (CHH) vs. S&P 500 (SPY)

Market Cap

$5.77B

Dividend Yield0.93%

Average Volume (3M)468.11K

Price to Earnings (P/E)19.9

Beta (1Y)0.59

Revenue Growth2.63%

EPS Growth23.39%

CountryUS

Employees1,695

SectorConsumer Cyclical

Sector Strength60

IndustryTravel Lodging

Share Statistics

EPS (TTM)6.26

Shares Outstanding46,728,073

10 Day Avg. Volume432,688

30 Day Avg. Volume468,111

Financial Highlights & Ratios

PEG Ratio0.85

Price to Book (P/B)N/A

Price to Sales (P/S)3.82

Price to Cash Flow (P/CF)18.30

P/FCF Ratio29.20

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$143.11

Price Target Upside21.81% Upside

Rating ConsensusHold

Number of Analyst Covering9

Choice Hotels Business Overview & Revenue Model

Company DescriptionChoice Hotels International, Inc. (CHH) is a prominent player in the global hospitality industry, primarily operating as a franchisor of a range of hotel brands. With a diverse portfolio that includes upscale, midscale, extended stay, and economy segments, Choice Hotels offers various accommodations to meet the needs of different travelers. Notable brands under its umbrella include Comfort, Sleep Inn, Quality Inn, Clarion, Cambria Hotels, and MainStay Suites, among others. The company is committed to providing quality lodging experiences across more than 40 countries and territories worldwide.

How the Company Makes MoneyChoice Hotels generates revenue primarily through its franchising model. The company earns money by collecting franchise fees from hotel owners who operate under its brands. These fees include initial franchise fees upon signing a franchise agreement and ongoing royalty fees, which are typically a percentage of the hotel's gross room revenues. Additionally, Choice Hotels charges marketing and reservation system fees, which fund centralized marketing campaigns and reservation services that benefit franchisees. The company also generates revenue through partnerships and agreements with third-party vendors, offering loyalty programs, and providing management and consultancy services to certain properties. Strategic partnerships with online travel agencies and other travel-related services further enhance its revenue streams.

Choice Hotels Financial Statement Overview

Summary

Choice Hotels exhibits strong operational performance and cash flow generation, driven by steady revenue growth and high margins. However, the balance sheet reveals considerable leverage and negative equity, posing financial stability concerns. The company is performing well in operations but must address capital structure to mitigate risks.

Income Statement

Very Positive

Choice Hotels has demonstrated consistent revenue growth and profitability. The revenue growth rate from 2023 to 2024 was approximately 2.63%, reflecting stable demand in the hospitality sector. The gross profit margin stands at an impressive 100%, unusual for typical hotel operations, indicating potential categorization of costs. Net profit margin improved to 18.91% in 2024, up from 16.74% in 2023, and EBIT margin also increased to 29.26%. The EBITDA margin of 33.20% showcases strong operating efficiency.

Balance Sheet

Neutral

The balance sheet reflects significant financial leverage, with a high debt-to-equity ratio due to negative stockholders' equity, indicating potential financial risk. The equity ratio is negative at -1.79%, a result of liabilities exceeding assets. Return on Equity is not meaningful with negative equity. These factors highlight potential instability in financial structure despite operational success.

Cash Flow

Positive

Operating cash flow increased to $319.4 million in 2024, showing strong cash generation capability. Free cash flow grew notably by 79.15% from the previous year. The operating cash flow to net income ratio is robust at 1.07, indicating efficient cash conversion. However, the free cash flow to net income ratio is slightly high at 1.07, suggesting prudent expenditure management.

Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
1.58B	1.54B	1.40B	1.07B	774.07M
	Gross Profit
1.58B	690.28M	700.05M	599.60M	311.16M
	EBIT
463.77M	375.03M	478.60M	428.93M	122.05M
	EBITDA
553.64M	440.39M	511.03M	447.94M	127.86M
	Net Income Common Stockholders
299.67M	258.51M	332.15M	288.96M	75.39M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
40.18M	26.75M	41.57M	511.61M	234.78M
	Total Assets
2.53B	2.39B	2.10B	1.93B	1.59B
	Total Debt
1.89B	1.68B	1.27B	1.10B	1.07B
	Net Debt
1.85B	1.65B	1.23B	584.36M	836.70M
	Total Liabilities
2.58B	2.36B	1.95B	1.67B	1.59B
	Stockholders Equity
-45.27M	35.60M	154.66M	265.88M	-5.75M
Cash Flow		Free Cash Flow
319.40M	178.26M	273.48M	305.83M	75.10M
	Operating Cash Flow
319.40M	296.55M	367.06M	383.70M	115.05M
	Investing Cash Flow
-84.57M	-265.63M	-442.43M	-78.93M	-29.47M
	Financing Cash Flow
-221.71M	-45.94M	-394.15M	-27.72M	115.40M

Choice Hotels Technical Analysis

Technical Analysis Sentiment

Negative

Last Price117.49

Price Trends

50DMA

140.16

Negative

100DMA

142.25

Negative

200DMA

134.91

Negative

Market Momentum

MACD

-3.01

Negative

RSI

42.35

Neutral

STOCH

76.21

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For CHH, the sentiment is Negative. The current price of 117.49 is below the 20-day moving average (MA) of 129.45, below the 50-day MA of 140.16, and below the 200-day MA of 134.91, indicating a bearish trend. The MACD of -3.01 indicates Negative momentum. The RSI at 42.35 is Neutral, neither overbought nor oversold. The STOCH value of 76.21 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for CHH.

Choice Hotels Risk Analysis

Choice Hotels disclosed 32 risk factors in its most recent earnings report. Choice Hotels reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Choice Hotels Peers Comparison

Overall Rating

UnderperformOutperform

Sector (59)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
HLT	72 Outperform	$48.91B	33.25	-41.19%	0.29%	9.17%	42.78%
WH	72 Outperform	$6.17B	22.06	41.40%	1.88%	―	6.40%
H	64 Neutral	$10.47B	8.67	36.45%	0.55%	-6.41%	511.40%
IHG	62 Neutral	$15.25B	25.95	-27.16%	1.52%	6.34%	-11.99%
CHH	60 Neutral	$5.77B	19.90	-661.94%	0.93%	2.63%	23.39%
Sector *	59 Neutral	$10.97B	9.83	-1.56%	4.06%	1.31%	-16.49%
MAR	55 Neutral	$58.75B	25.62	-144.82%	1.18%	5.85%	-18.43%

* Consumer Cyclical Sector Average

Performance Comparison

CHH

Choice Hotels

117.49

-7.62

-6.09%

Hyatt Hotels

104.27

-52.46

-33.47%

IHG

Intercontinental Hotels Group

96.02

-3.63

-3.64%

MAR

Marriott International

211.12

-41.28

-16.35%

HLT

Hilton Worldwide Holdings

201.28

-8.09

-3.86%

Wyndham Hotels & Resorts

78.47

5.73

7.88%

Choice Hotels Earnings Call Summary

Earnings Call Date: Feb 20, 2025 | % Change Since: -20.28% | Next Earnings Date: May 8, 2025

Earnings Call Sentiment Positive

The earnings call reveals a strong financial performance with significant growth in key segments such as global rooms, business travel, and international presence. However, there are challenges in the hotel development environment and limited expectations for net unit growth, which may temper overall enthusiasm.

Highlights

Strong Financial Performance

Choice Hotels exceeded the top end of their guidance with a 12% year-over-year increase in adjusted EBITDA and a 13% increase in adjusted earnings per share for 2024.

Significant Growth in Global Rooms

The company realized a 3.3% year-over-year net increase in global rooms, including a 4.3% net increase for domestic rooms, and opened 21% more hotels worldwide in 2024 compared to the prior year.

Robust Business Travel and Group Segment Growth

Business transient segment grew 14% year-over-year in Q4, and group travel business saw over a 45% increase in revenue from group accounts in Q4.

Expansion in Extended Stay and Upscale Segments

The company added more than 4,500 extended stay rooms in 2024 and expanded the upscale segment by 44% year-over-year.

Increased International Presence

Choice Hotels increased its international rooms portfolio by 4.4% year-over-year, with a 58% increase in hotel openings.

Lowlights

Challenging Hotel Development Environment

Despite an 8% year-over-year increase in the number of new construction hotels opened, the company faced a challenging hotel development environment due to high interest rates and construction costs.

Limited Net Unit Growth Outlook

For 2025, the company expects net global unit and room system size to grow approximately 1% year-over-year, reflecting ongoing challenges in the hotel development sector.

Reimbursable Revenue Deficit

The company operated its reimbursable revenue activities at an $18 million deficit for 2024, with expectations to increase this deficit to $50 million in 2025.

Company Guidance

During the Choice Hotels International Fourth Quarter and Full Year 2024 Earnings Call, the company reported strong financial results, with a 12% year-over-year increase in adjusted EBITDA, reaching $604.1 million, and a 13% increase in adjusted earnings per share, reaching $6.88. The company saw a 3.3% net increase in global rooms, driven by a 4.3% increase in more revenue-intensive domestic rooms. Choice Hotels also experienced a 21% increase in hotel openings worldwide in 2024. The company outperformed the industry in domestic RevPAR by 90 basis points, with a 4.5% increase year-over-year. Additionally, business travel represented approximately 40% of the overall mix, with the business transient segment growing 14% year-over-year in the fourth quarter. Looking ahead to 2025, Choice Hotels expects adjusted EBITDA to range between $625 million and $640 million, with adjusted diluted earnings per share projected to be between $6.98 and $7.24. The company anticipates a 1% year-over-year growth in global unit and room system size and a 1% to 2% year-over-year increase in domestic RevPAR.

Choice Hotels Corporate Events

Stock BuybackBusiness Operations and StrategyFinancial Disclosures

Choice Hotels Reports Strong Q4 and 2024 Performance

Positive

Feb 20, 2025

Choice Hotels International reported a strong financial performance for the fourth quarter and full-year 2024, surpassing earnings guidance. The company’s net income increased by 16% to $299.7 million, and its global net rooms system size grew by 3.3%. Key achievements included a strategic partnership with Westgate Resorts, the opening of 407 hotels globally, and a significant expansion of both domestic and international portfolios. Additionally, Choice Hotels enhanced its rewards program, increased revenue per available room (RevPAR), and executed a substantial share repurchase program, reflecting a robust growth strategy and positive outlook for 2025.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.