Choice Hotels initiated with an Underweight at Wells Fargo

Wells Fargo initiated coverage of Choice Hotels (CHH) with an Underweight rating and $133 price target implying 12% downside. The firm sees Choice Hotels’ current 14-times 2025 EV/EBITDA as full vs. its modest 3% EBITDA growth, its RevPAR has underperformed its index/weighting and increased key money has yet to pay dividends. Wells’ cautious view reflects Choice Hotels’ current 14-times EV/EBITDA valuation that seems disconnected vs. its modest EBITDA growth outlook, minimal fee growth given a stagnant footprint and RevPAR that has underperformed its index, recent EBITDA growth has been driven by opaque/ancillary fees, and increasing use of key money, with relatively minimal improvement to date in its NUG/pipeline.