In a report published Tuesday morning, Wells Fargo analyst Jeffrey Donnelly upgraded Choice Hotels International, Inc. CHH from Underperform to Market perform. The analyst raised the valuation range from $40-41 to $47-49.
Donnelly cited the negative effects from the bad press surrounding the Skytouch hotel software have been priced in, and are expected to decrease in 2015. The market is expected to view the software more favorably in the future, and there is potential for improving operations, in addition to executing more franchise agreements (129 in Q2).
“Our valuation is based on a 15% premium to its historic P/E and EV/EBITDA multiples on our FTM estimates excluding the impact of its SkyTouch division, less the G&A of SkyTouch. Risks to achieving our valuation include threats or acts of terrorism, delays in the development pipeline, fewer than expected contract signings, slower than expected improvement in the effective royalty rate, and a slower than expected ramp up in its SkyTouch business”.
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