Morgan Stanley Downgrades Choice Hotels (CHH) to Underweight

Morgan Stanley analyst Stephen Grambling downgraded Choice Hotels (NYSE: CHH) from Equalweight to Underweight with a price target of $129.00 (from $145.00).

The analyst comments: "We are downgrading the stock as we see downside to consensus estimates based on 1) losing share in development to larger scale peers; and 2) underperforming RevPAR on a chain scale weighted basis amidst competitive pressures in midscale. In addition, CHH's focus on moving upstream is coming at the expense of weaker FCF conversion with a step-up in key money and capex. We have yet to see fee per room growth inflect from CHH's revenue-intense strategy with the company ranking at the bottom of the peer group in 2024. With the stock still well above the average trend-line last year and EV/EBITDA plus P/E of ~14x and ~19.5x at only a slight discount vs. history of 14.5x/20.5x despite higher rates, lower organic room growth and weaker FCF conversion, we see a more negative risk-reward. We tweak our estimates and price target to account for more challenged net unit growth, RevPAR, and royalty rate expansion. Our multiple moves to 13.9x (vs. 14.7x prior) on weaker FCF conversion. We now have 8% downside to our revised 12-month price target of $129 (vs. $145 prior)."

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 $142.86 yesterday.

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