On Wednesday, Deutsche Bank updated its stance on NYSE:CHH, the stock of Choice Hotels (NYSE:CHH), by raising the price target to $128 from $123. The firm maintained its Hold rating on the hotel company's shares. This adjustment reflects a refined valuation approach that takes into account various business segments and projected earnings.
The analyst from Deutsche Bank provided a detailed rationale for the new price target, citing a valuation based on a sum-of-the-parts analysis. The target multiple applied to royalty fees is 13.5 times the projected 2025 earnings, while initial franchising and licensing fees, procurement services, and other owned segments have been valued at 9.0 times.
The combination of these valuations has resulted in a blended multiple of 12.4 times the estimated 2025 EBITDA (earnings before interest, taxes, depreciation, and amortization).
The bank's approach also includes adjustments for future expenses and liabilities. To arrive at the equity value target, the analyst deducted the capitalized unallocated SG&A (selling, general, and administrative expenses) and the net debt that Choice Hotels is expected to have in 2025.
Deutsche Bank's analysis suggests that the multiples used for valuation are consistent with historical trends, particularly in relation to the current stage of the lodging cycle and the prevailing market conditions. By maintaining the Hold rating, the firm indicates that while the stock's future performance has a positive outlook based on the increased price target, it may not suggest a strong buy signal at this time.
Investors and market watchers will likely monitor how Choice Hotels performs in relation to this updated valuation, as well as how it navigates the evolving landscape of the lodging industry in the coming years.
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