On Tuesday, Goldman Sachs (NYSE:GS) updated its stance on Choice Hotels (NYSE:CHH) International, Inc. (NYSE:CHH), increasing the price target to $118.00 from the previous $105.00 while keeping a Sell rating on the stock. The adjustment follows Choice Hotels' third-quarter financial performance, which surpassed expectations mainly due to specific financial adjustments.
The analysis from Goldman Sachs highlighted that the third-quarter earnings beat was driven largely by add-backs, which also influenced the firm's raised long-term EBITDA estimates. During the earnings call, Choice Hotels indicated that it anticipates continued marketing under-spending in the coming years, a result of a surplus accumulated during the COVID-19 pandemic, along with additional ancillary benefits.
Despite acknowledging these factors, Goldman Sachs remains cautious, particularly concerning the timing of when the reduced marketing spend might reverse and any potential effects on franchisee feedback. The company's projection of improved fourth-quarter revenue per available room (RevPAR) was seen as positive, though it was largely anticipated following the results from Wyndham Hotels a couple of weeks prior.
The firm also slightly increased its expectations for net rooms growth for the fiscal year 2024. However, concern was noted regarding the deceleration of Choice Hotels' global pipeline for the second quarter in a row this year. This trend leads Goldman Sachs to believe that Choice Hotels' supply growth may lag behind the broader sector.
In conclusion, while Goldman Sachs has increased its price target for Choice Hotels due to these factors, it maintains a Sell rating on the stock, pending additional evidence to support a more favorable outlook.
In other recent news, Choice Hotels International, Inc. reported a robust third-quarter performance in 2024, with significant growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings per share (EPS). The company raised its full-year guidance for adjusted net income and EPS, projecting a 10% growth in adjusted EBITDA. Choice Hotels also saw an 11% year-over-year increase in its global hotel pipeline, which expanded to over 110,000 rooms.
The company opened 75% more hotels globally compared to the same quarter the previous year, and noted a 1.8% net increase in global rooms in more revenue-intensive brands. Analysts from Radisson Americas reported a 10% increase in pipeline rooms, with a rise in new construction. Choice Hotels' extended-stay segment has seen growth over 10% for five consecutive quarters, with 350 hotels in the pipeline.
The company's domestic revenue per available room (RevPAR) exceeded expectations due to leisure and corporate travel recovery. Its international portfolio expanded by 3.8% year-over-year, with growth in Europe, the Middle East, and Africa (EMEA). The Choice Privileges rewards program grew to 68 million members.
InvestingPro Insights
While Goldman Sachs maintains a cautious stance on Choice Hotels International, Inc. (NYSE:CHH), recent InvestingPro data reveals some positive aspects of the company's financial health. Choice Hotels boasts an impressive gross profit margin of 90.13% for the last twelve months as of Q2 2024, reflecting strong operational efficiency. This aligns with one of the InvestingPro Tips, which highlights the company's "impressive gross profit margins."
Additionally, Choice Hotels has demonstrated a commitment to shareholder value. An InvestingPro Tip notes that "management has been aggressively buying back shares," which can be seen as a vote of confidence in the company's future prospects. Furthermore, the company "has maintained dividend payments for 21 consecutive years," showcasing its financial stability and dedication to returning value to shareholders.
It's worth noting that Choice Hotels' revenue for the last twelve months as of Q2 2024 stands at $771.95 million, with a growth rate of 4.02%. This growth, albeit modest, could be a factor in the company's ability to maintain its dividend streak and share buyback program.
For investors seeking a more comprehensive analysis, InvestingPro offers additional insights, with 6 more tips available for Choice Hotels. These additional tips could provide valuable context to Goldman Sachs' analysis and help investors make more informed decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.