CHOICE HOTELS INTERNATIONAL INC /DE (CHH): what the price requires
At today's price, CHOICE HOTELS INTERNATIONAL INC /DE (CHH) is priced for -2.0% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/CHH
Headline
| Field | Value |
|---|---|
| Ticker | CHH |
| Company | CHOICE HOTELS INTERNATIONAL INC /DE |
| Current price | $108.55/sh |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 4.3% |
| Operating margin today | 26.3% |
| Margin compression implied | -22.0pp |
| Implied growth | -2.0% |
| Multiple paid | 17x operating income |
The operating-margin requirement is derived from the framework's value band at year 6, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 7.3% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.1pp.
Reconcile: at the x-ray's 9.3% required return this reads ~11.2%/yr; the models below use their own rates.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -0.44σ |
| cohort percentile (of 210 peers) | 44 |
| implied end-window share | 0% |
Valuation X-Ray
The price is supported by asset-based and relative-multiple value, while earnings-power lands below the price. A value/asset-supported name, not a pure growth bet.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.05x | 4 | expensive |
| Earnings | 2.00x | 4 | expensive |
| Relative | 1.25x | 5 | expensive |
| Growth | 1.49x | 3 | expensive |
Families that justify the price: Asset, Relative Families that call it expensive: Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 6.7%); the inversion above states its own rate.
Per-Model Detail (n=16)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $44.66 | 2.43x | yes | FCF base $0.2B, growth 1% (input: historical growth), terminal g 1.2%, WACC 6.7%, 5yr projection |
| DCF Exit Multiple | Growth | $95.56 | 1.14x | yes | Exit EV/EBITDA: 12.4x / 14.4x / 16.4x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $110.00 | 0.99x | yes | P/E 18x (static sector reference · 2026-04), scenarios: 15.2x / 18.0x / 20.8x (bear / base = reference held flat / bull), EV/EBITDA 12x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $81.19 | 1.34x | yes | BV/sh $2.99, ROE (TTM) 251.6%, ke 9.3% |
| Two-Stage Excess Return | Asset | $2171.00 | 0.05x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $72.98 | 1.49x | yes | Rev $1.6B, growth 1% (input: historical growth; tapered), Terminal P/S: 2.6x / 3.1x / 3.6x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $88.80 | 1.22x | yes | EPS $7.40, growth 1% (input: historical EPS growth), PEG=13.01 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $45.73 | 2.37x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.42B × (1−33%) / WACC 6.7% → EPV (no growth) |
| Residual Income | Asset | $140.53 | 0.77x | yes | BV $2.99 + 5yr PV of (ROE (TTM) 251.6% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $22.30 | 4.87x | yes | √(22.5 × EPS $7.40 × BVPS $2.99) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $83.20 | 1.30x | yes | EBITDA $0.49B × sector EV/EBITDA 12.0x |
| FCF Yield | Earnings | $8.39 | 12.94x | yes | FCF $226.8M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $0.01 | 10855.00x | yes | SBC-adj FCF $0.19B (FCF $0.23B − SBC $0.04B) capitalized at Kₑ (excluded from median) |
| Ben Graham Formula | Earnings | $66.49 | 1.63x | yes | EPS $7.40 × (8.5 + 2×1.1%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $0.81 | 134.01x | yes | BV $2.99 × (ROIC 1.8% / WACC 6.7%) (excluded from median) |
| P/Sales Sector | Relative | $87.14 | 1.25x | yes | Revenue $1.60B × sector P/S 2.5x |
| PEG Fair Value | Relative | $37.00 | 2.93x | yes | EPS $7.40 × (PEG 1.5 × growth 1.1% (input: historical EPS growth)) → PE 1.7x |
| Earnings Yield | Earnings | $80.00 | 1.36x | yes | EPS $7.40 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $2.0b |
| Net debt / NOPAT (after-tax) | 7.19x |
| Net debt / operating income (pre-tax) | 4.81x |
| Interest coverage | 4.5x |
| Share count CAGR (buyback) | -4.8% |
| Burning cash | no |
Bullet Takeaways
- The headline oddity is a trailing return on equity above 250%, which looks impossible until you see book value per share is only about $2.99. Choice runs an asset-light franchise model with almost no equity on the books, so conventional book-based ratios distort badly here.
- Unlike most names where every method sits below the price, Choice is asset-and-peer supported. Relative valuation lands at $110 against a $115.05 price, and the reverse-DCF reads the implied bet as within the company's normal range rather than a stretch.
- The catch is leverage. Net debt is about $1.96 billion, roughly 4.6x trailing operating income, funded to buy back stock and shrink an already-thin equity base. Q1 2026 adjusted EPS fell to $1.07 from $1.34 as U.S. RevPAR slipped.
Bull Case
The most counterintuitive number in Choice Hotels is its return on equity, reported above 250%. That figure looks like a typo until you understand the business. Choice is a franchisor, not a hotel owner, so book value per share is only about $2.99 and almost all the value lives in the royalty stream rather than on the balance sheet. The filing describes the economics directly: the fee-and-cost structure lets the company improve results by increasing franchised rooms, improving RevPAR, and raising royalty rates (FY2025 10-K, accession 0001046311-26-000008). When the asset base is tiny and the income stream is large, returns on accounting equity go vertical. The right way to read Choice is as an annuity on hotel revenue, not as a leveraged property play.
That framing also explains why the valuation here is different from the typical name. Relative valuation lands at $110 against a $115.05 price, EV/EBITDA relative at $83.20, and the DCF exit-multiple at $99.96. The reverse-DCF characterizes the implied assumption as within range: the price requires only about half a percent of operating-income growth, which is a low bar for a business expanding its franchise system. Development metrics back that up. Q1 2026 global net rooms grew 1.7%, U.S. room openings rose 32%, and global franchise agreements awarded jumped 72%, so the unit-growth engine that compounds royalties is accelerating even as same-store RevPAR softens.
There is a structural advantage that shows up in downturns. The filing notes that Choice's conversion brands generally benefit from lodging-cycle downturns, because independent and other-chain hotels convert into the system to improve performance when times are hard (FY2025 10-K, accession 0001046311-26-000008). That counter-cyclical conversion pipeline means a weaker travel environment is not a one-way negative for a franchisor the way it is for an owner. Management is also leaning into capital efficiency, cutting hotel-development capital from $103.4 million in 2025 to a planned $20 to $45 million, and pairing that with $175 to $225 million of planned share repurchases against a share count already shrinking nearly 5% a year. Less capital tied up, more cash returned, on a growing royalty base.
Bear Case
The structural truth a Choice holder would rather not face is that the equity sits on top of a large debt load and a near-empty balance sheet. Net debt is roughly $1.96 billion against trailing operating income of about $429 million, so leverage runs near 4.6x with interest coverage around 4.6x. Book value per share of $2.99 is not a sign of hidden value; it is the residue of years of borrowing to buy back stock. The company's debt agreements carry covenants restricting liens, additional indebtedness, dividends, repurchases, investments, and asset sales, and require maintaining a consolidated fixed-charge coverage ratio (FY2025 10-K, accession 0001046311-26-000008). That is a capital structure with little slack if the royalty stream stumbles.
And the royalty stream is, for now, softening at the property level. Q1 2026 adjusted diluted EPS fell to $1.07 from $1.34, adjusted EBITDA dipped to $125.7 million from $129.6 million, and U.S. RevPAR declined 2.3% year over year. Management attributed part of that to hurricane distortion and pointed to a 1.8% underlying gain, but the reported direction is down, and RevPAR is the variable that drives royalty dollars. A franchisor's earnings are geared to RevPAR times unit count; if RevPAR keeps drifting lower, even rising room counts may not fully offset it, and the highly levered equity feels that gap first.
The valuation models built on current earnings, rather than the franchise annuity, look stretched. Earnings power value lands at $44.38, the zero-growth FCF-yield read at $8.39, and the DCF perpetual-growth method at $43.04, all far below the $115.05 price (June 27, 2026). These are not the most relevant frames for an asset-light model, but they are a reminder that the price leans on continued growth in the royalty base. With the company pulling back development capital, the unit-growth lever is being managed for cash return rather than expansion, which is shareholder-friendly until the day RevPAR weakness and a 4.6x debt load meet in the same quarter.
Valuation
Choice Hotels is the rare name in this set where the valuation X-ray is not uniformly below the price. The relative-valuation method lands at $110 against a $115.05 quote, the closest read of all, and EV/EBITDA relative at $83.20. The reverse-DCF reads the price as asset-and-peer supported rather than a pure growth bet, with an implied operating-income growth requirement of only about half a percent.
The book-based methods are the ones to discount here. The two-stage excess-return model reads $2,301 and ROIC-justified P/B reads $0.80, both nonsense in opposite directions, because book value per share of $2.99 makes any ratio anchored to equity wildly unstable. That is the signature of an asset-light franchisor: the accounting equity is a poor proxy for economic value, so the asset family swings violently and should carry little weight. The earnings-power frames, by contrast, are coherent but conservative, landing in the $40s to $80s because they capitalize current earnings at no growth.
The blended multiple of about 17.6x is reasonable for a capital-light, recurring-royalty model that is shrinking its share count and cutting development capital. The bet a buyer makes at $115.05 is that unit growth and royalty-rate gains outrun the recent RevPAR weakness, while the debt load stays serviceable. The relative-method proximity to price says the market is paying about what peers fetch, not an extreme premium.
Catalysts
The Q1 2026 report on April 30 was the most recent catalyst and a mixed one: record revenue of $340.6 million but adjusted EPS down to $1.07 from $1.34 and U.S. RevPAR off 2.3% year over year, with management citing hurricane distortion. The company maintained full-year 2026 guidance of $632 to $647 million in adjusted EBITDA and $6.92 to $7.14 in adjusted EPS, so the next quarterly print is the test of whether the back half delivers against an unchanged outlook.
The forward watch items are clear. First, RevPAR trend, since it directly drives royalty dollars and the Q1 decline is the open question. Second, the unit-growth pipeline, where Q1 showed global franchise agreements up 72% and U.S. room openings up 32%, the engine that can offset soft RevPAR if it holds. Third, capital allocation: management plans $175 to $225 million of buybacks and is cutting development capital from $103.4 million to a $20 to $45 million range, a shift toward returning cash that supports per-share earnings on an already-declining share count. Watch the net-debt trajectory alongside those buybacks, because the repurchase program is what keeps the thin equity base shrinking against a roughly $2 billion debt load.
Peer Cohorts (Per Segment, With Filing Citations)
Hotel Franchising & Management (reported)
- WH (Wyndham Hotels & Resorts, Inc.)
- (no filing in the citation store)
- ATAT (Atour Lifestyle Holdings Limited)
- (no filing in the citation store)
- TNL (Travel & Leisure Co.)
- (no filing in the citation store)
- HGV (Hilton Grand Vacations Inc.)
- (no filing in the citation store)
- XHR (Xenia Hotels & Resorts, Inc.)
- (no filing in the citation store)
- PK (Park Hotels & Resorts Inc.)
- (no filing in the citation store)
- SHO (Sunstone Hotel Investors, Inc.)
- (no filing in the citation store)
- MCRI (MONARCH CASINO & RESORT, INC)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.