Investors in Choice Hotels International, Inc. (NYSE:CHH) had a good week, as its shares rose 3.3% to close at US$108 following the release of its full-year results. It was a credible result overall, with revenues of US$1.1b and statutory earnings per share of US$3.98 both in line with analyst estimates, showing that Choice Hotels International is executing in line with expectations. This is an important time for investors, as they can track a company’s performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. So we gathered the latest post-earnings forecasts to see what analysts’ statutory forecasts suggest is in store for next year.
Taking into account the latest results, the most recent consensus for Choice Hotels International from eight analysts is for revenues of US$1.17b in 2020, which is a credible 5.3% increase on its sales over the past 12 months. Statutory per-share earnings are expected to be US$4.03, roughly flat on the last 12 months. Yet prior to the latest earnings, analysts had been forecasting revenues of US$1.16b and earnings per share (EPS) of US$4.30 in 2020. So it looks like there’s been a small decline in overall sentiment after the recent results – there’s been no major change to revenue estimates, but analysts did make a minor downgrade to their earnings per share forecasts.
The consensus price target held steady at US$96.77, with analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. Currently, the most bullish analyst values Choice Hotels International at US$110 per share, while the most bearish prices it at US$85.00. The narrow spread of estimates could suggest that the business’ future is relatively easy to value, or that analysts have a clear view on its prospects.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. It’s pretty clear that analysts expect Choice Hotels International’s revenue growth will slow down substantially, with revenues next year expected to grow 5.3%, compared to a historical growth rate of 7.0% over the past five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 7.9% next year. So it’s pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than Choice Hotels International.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – although our data does suggest that Choice Hotels International’s revenues are expected to perform worse than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for Choice Hotels International going out to 2022, and you can see them free on our platform here.
You can also view our analysis of Choice Hotels International’s balance sheet, and whether we think Choice Hotels International is carrying too much debt, for free on our platform here.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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