On Monday, Jefferies shifted its stance on Choice Hotels (NYSE:CHH) International, Inc. (NYSE:CHH), elevating the stock from an Underperform rating to a Buy. The firm also significantly increased the price target to $156.00, up from the previous figure of $96.00.
The upgrade comes following Choice Hotels' decision to halt acquisition efforts for Wyndham (NYSE:WH) Hotels, a move that analysts believe will allow the company's shares to benefit from solid lodging industry fundamentals without the overhang of deal uncertainty.
The analyst from Jefferies noted that the cessation of the Wyndham Hotels acquisition bid reduces the risk profile for Choice Hotels, potentially enabling the stock to regain its historical mid-range normalized valuation. Currently, the stock trades at approximately 13.4 times its estimated 2024 EBITDA. This is lower than the valuations of small to mid-sized (SMID) and large-cap peers in the lodging sector, which are trading at 14.0 times and 17.4 times, respectively.
The firm's management has indicated plans to buy back shares, which, according to the analyst, should support a higher stock price level. This share repurchase intention, combined with the company's solid fundamentals in the lodging industry, underpins the new price target.
Investors and market watchers will be keeping a close eye on Choice Hotels' stock performance in the wake of this analyst upgrade and the anticipated share repurchase activities. With the removal of deal-related risks and a focus on core business strengths, Choice Hotels appears poised for a potential valuation recalibration in line with its industry counterparts.
InvestingPro Insights
The recent upgrade of Choice Hotels International, Inc. (NYSE:CHH) by Jefferies to a Buy rating is further substantiated by real-time data and insights from InvestingPro. Notably, the company's market capitalization stands at a robust $5.95 billion, reflecting its significant presence in the lodging industry. Moreover, the stock's price-to-earnings (P/E) ratio is currently at 23.78, with an adjusted P/E for the last twelve months as of Q4 2023 at a slightly lower 19.82, indicating a favorable earnings outlook relative to its stock price.
One of the key InvestingPro Tips highlights the company's impressive gross profit margin, which has reached 90.6% over the last twelve months as of Q4 2023. This figure not only demonstrates Choice Hotels' efficiency in managing its costs but also its ability to sustain a high level of profitability. Additionally, the company has shown a significant return over the last week, with a 10.43% price total return, showcasing a short-term positive momentum in its stock performance.
While the company is trading at a high Price / Book multiple of 167.27, indicating a premium valuation, this could be reflective of investor confidence in the company's future growth prospects. Furthermore, the management's strategy to aggressively buy back shares is seen as a positive move that could support the stock price in the near term. This strategy aligns with the company's history of maintaining dividend payments for 21 consecutive years, emphasizing its commitment to shareholder returns.
For those interested in a deeper analysis, there are additional InvestingPro Tips available for Choice Hotels, providing a comprehensive view of the company's financial health and market position. To access these insights and make informed investment decisions, readers are encouraged to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. With a total of 9 additional tips listed, investors can gain a nuanced understanding of Choice Hotels' potential in the current market landscape.
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