Nomura Securities Cuts Estimates on Choice Hotels (CHH); Range-Bound Until Dividend Paid

July 27, 2012 1:07 PM EDT
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Price: $54.40 --0%

Rating Summary:
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Nomura Securities maintains a 'Neutral' on Choice Hotels (NYSE: CHH) price target of $33.00 (from $41.00)

Analyst, Harry Curtis, said, "We’re lowering our 2012 and 2013 EPS estimates to reflect higher interest expense from the $600m CCH borrowed to pay a $10.42 one-time dividend. Our 2013 Estimate falls to $1.96 from $2.15 to reflect higher interest expense, which should cost CHH $0.16 in the back half of the year, as well as a flat year-over-year growth in the royalty rate and 100bps reduction in annual RevPAR to 6.4% from 7% ($0.03). Our 2013 estimate falls to $2.00 from $2.41 due to lower RevPAR ($0.09) and higher interest expense ($0.32)...We believe the special dividend is for the benefit of the Bainum family, the company’s largest shareholder. However, we believe that a share repurchase would have created more long-term value. CHH posted better than expected 2Q EPS of $0.55, compared with our $0.53 and the Street at $0.52. CHH beat on better than expected operating margin, 30%, vs. our 29%. CHH trades at a P/E of 19.8x and 14.7x our revised 2012 and 2013 EPS estimates. We expect shares to be range-bound until the dividend is paid at the end of August."

For an analyst ratings summary and ratings history on Choice Hotels click here. For more ratings news on Choice Hotels click here.

Shares of Choice Hotels closed at $39.11 yesterday.

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