BofA double downgrades Choice Hotels on prolonged weakness in budget travel

Investing.com -- Bank of America double downgraded Choice Hotels International to Underperform from Buy, warning that persistent softness in budget travel is eroding the company’s growth outlook.

Analysts said they had backed the stock for much of the past decade but now see the risk-reward skewing negative as economic pressures weigh on lower-income travellers, Choice’s core customer base.

The broker reduced its price objective to $110 from $160. Shares are down 1.52%. Choice Hotels are up around 6% year-to-date.

Low-end travel is experiencing an extended period of soft demand. There is weaker consumer sentiment among lower earners, inflation pressure and geographic exposure.

Budget hotels have typically been more resilient during economic slowdowns, but BofA said current headwinds may prove more “structural.”

The brokerage said Choice has underperformed peers on several key measures. Its revenue per available room (RevPAR) has lagged rival chains by 15 percentage points since 2019, while its pipeline of new hotel additions is the weakest among listed lodging brands.

In past years, the company compensated for softer underlying trends through acquisitions, higher-fee franchise agreements and ancillary revenue streams.

BofA now expects those tailwinds to fade while its balance sheet offers limited scope for further leverage or buybacks.

Choice trades below its historical averages at about 11 times forecast 2026 earnings before interest, tax, depreciation and amortisation. Even so, the broker argued that a re-rating looks unlikely if growth continues to slow.

“Lower growth equals lower multiple,” BofA wrote, adding that a material acceleration in RevPAR would be needed to support current investor expectations.

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