Choice Hotels International: Shares Look Cheap Amid Soft Domestic Demand

Choice Hotels International (CHH) shares have declined over 20% year-to-date, underperforming peers primarily due to soft U.S. market demand and a downgraded 2025 guidance, including an anticipated fall in revenue per available room. Despite these challenges, the company retains potential earnings growth levers such as room count and royalty rate expansion, along with share buybacks, leading to its current valuation of 15x consensus 2025 EPS being considered inexpensive relative to historical levels and competitors.

Analysis

Choice Hotels International (CHH) has experienced significant share price pressure, declining over 20% year-to-date and underperforming its peer group. This weakness is attributed to soft demand within the critical U.S. market, which has prompted a downgrade to the company's 2025 guidance. A key metric, revenue per available room (RevPAR), is now expected to fall this year, signaling near-term operational headwinds. Despite the challenging top-line environment, the company possesses alternative levers for earnings growth, including expansion of its room count, increases in royalty rates, and accretive share repurchase programs. Consequently, the stock's valuation has compressed to 15 times the consensus 2025 earnings per share estimate, a level that appears inexpensive when compared to both competitor multiples and the company's own historical valuation.

Key Decisions for Investors

• Given the stock's valuation at 15x consensus 2025 EPS, which is a discount to both peers and its historical average, value-focused investors may see the current weakness as a long-term entry opportunity.
• It is critical to monitor for signs of stabilization in U.S. RevPAR trends, as persistent softness in domestic demand remains the primary risk to the earnings outlook despite the positive sentiment.
• Investors should weigh the downgraded guidance and falling RevPAR against the potential for earnings growth from non-demand drivers like room count expansion and share buybacks before initiating or adding to a position.