Intrinsic value of Choice Hotels International, Inc. - CHH

Previous Close

$88.84

  Intrinsic Value

$21.36

stock screener

  Rating & Target

str. sell

-76%

Previous close

$88.84

 
Intrinsic value

$21.36

 
Up/down potential

-76%

 
Rating

str. sell

We calculate the intrinsic value of CHH stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 4.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.60
  10.04
  9.54
  9.08
  8.67
  8.31
  7.98
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.33
  5.29
  5.26
Revenue, $m
  1,151
  1,267
  1,388
  1,514
  1,645
  1,782
  1,924
  2,072
  2,225
  2,385
  2,550
  2,723
  2,902
  3,088
  3,282
  3,484
  3,695
  3,914
  4,143
  4,381
  4,630
  4,890
  5,161
  5,445
  5,741
  6,052
  6,376
  6,716
  7,071
  7,443
Variable operating expenses, $m
  793
  868
  947
  1,029
  1,115
  1,203
  1,296
  1,392
  1,492
  1,596
  1,660
  1,772
  1,888
  2,010
  2,136
  2,267
  2,404
  2,547
  2,696
  2,851
  3,013
  3,182
  3,359
  3,543
  3,736
  3,938
  4,149
  4,370
  4,601
  4,844
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  793
  868
  947
  1,029
  1,115
  1,203
  1,296
  1,392
  1,492
  1,596
  1,660
  1,772
  1,888
  2,010
  2,136
  2,267
  2,404
  2,547
  2,696
  2,851
  3,013
  3,182
  3,359
  3,543
  3,736
  3,938
  4,149
  4,370
  4,601
  4,844
Operating income, $m
  358
  399
  441
  485
  531
  578
  628
  680
  733
  789
  891
  951
  1,014
  1,079
  1,146
  1,217
  1,290
  1,367
  1,447
  1,530
  1,617
  1,708
  1,803
  1,902
  2,005
  2,114
  2,227
  2,346
  2,470
  2,600
EBITDA, $m
  426
  468
  513
  560
  608
  659
  711
  766
  823
  882
  943
  1,007
  1,073
  1,142
  1,213
  1,288
  1,366
  1,447
  1,531
  1,620
  1,712
  1,808
  1,908
  2,013
  2,122
  2,237
  2,357
  2,483
  2,614
  2,752
Interest expense (income), $m
  42
  47
  35
  42
  50
  57
  65
  74
  82
  91
  101
  110
  121
  131
  142
  153
  165
  178
  190
  204
  218
  232
  247
  263
  280
  297
  315
  334
  354
  375
  397
Earnings before tax, $m
  311
  363
  399
  435
  473
  513
  554
  597
  642
  688
  780
  830
  883
  937
  993
  1,052
  1,113
  1,177
  1,243
  1,312
  1,385
  1,460
  1,539
  1,622
  1,708
  1,798
  1,893
  1,991
  2,095
  2,203
Tax expense, $m
  84
  98
  108
  117
  128
  139
  150
  161
  173
  186
  211
  224
  238
  253
  268
  284
  300
  318
  336
  354
  374
  394
  416
  438
  461
  486
  511
  538
  566
  595
Net income, $m
  227
  265
  291
  318
  346
  375
  405
  436
  469
  502
  570
  606
  644
  684
  725
  768
  812
  859
  907
  958
  1,011
  1,066
  1,124
  1,184
  1,247
  1,313
  1,382
  1,454
  1,529
  1,608

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,260
  1,386
  1,518
  1,656
  1,800
  1,949
  2,105
  2,267
  2,434
  2,609
  2,790
  2,979
  3,175
  3,379
  3,591
  3,812
  4,042
  4,282
  4,532
  4,793
  5,066
  5,350
  5,647
  5,957
  6,282
  6,621
  6,976
  7,348
  7,736
  8,144
Adjusted assets (=assets-cash), $m
  1,260
  1,386
  1,518
  1,656
  1,800
  1,949
  2,105
  2,267
  2,434
  2,609
  2,790
  2,979
  3,175
  3,379
  3,591
  3,812
  4,042
  4,282
  4,532
  4,793
  5,066
  5,350
  5,647
  5,957
  6,282
  6,621
  6,976
  7,348
  7,736
  8,144
Revenue / Adjusted assets
  0.913
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
Average production assets, $m
  289
  318
  348
  380
  413
  447
  483
  520
  559
  599
  640
  683
  728
  775
  824
  875
  927
  982
  1,040
  1,100
  1,162
  1,227
  1,295
  1,367
  1,441
  1,519
  1,600
  1,686
  1,775
  1,868
Working capital, $m
  -111
  -122
  -133
  -145
  -158
  -171
  -185
  -199
  -214
  -229
  -245
  -261
  -279
  -296
  -315
  -334
  -355
  -376
  -398
  -421
  -444
  -469
  -495
  -523
  -551
  -581
  -612
  -645
  -679
  -715
Total debt, $m
  566
  680
  799
  923
  1,052
  1,187
  1,327
  1,472
  1,624
  1,781
  1,944
  2,114
  2,290
  2,474
  2,665
  2,863
  3,071
  3,286
  3,512
  3,746
  3,991
  4,247
  4,515
  4,794
  5,086
  5,391
  5,711
  6,045
  6,395
  6,762
Total liabilities, $m
  1,134
  1,248
  1,366
  1,491
  1,620
  1,754
  1,894
  2,040
  2,191
  2,348
  2,511
  2,681
  2,858
  3,041
  3,232
  3,431
  3,638
  3,854
  4,079
  4,314
  4,559
  4,815
  5,082
  5,362
  5,654
  5,959
  6,278
  6,613
  6,963
  7,329
Total equity, $m
  126
  139
  152
  166
  180
  195
  210
  227
  243
  261
  279
  298
  318
  338
  359
  381
  404
  428
  453
  479
  507
  535
  565
  596
  628
  662
  698
  735
  774
  814
Total liabilities and equity, $m
  1,260
  1,387
  1,518
  1,657
  1,800
  1,949
  2,104
  2,267
  2,434
  2,609
  2,790
  2,979
  3,176
  3,379
  3,591
  3,812
  4,042
  4,282
  4,532
  4,793
  5,066
  5,350
  5,647
  5,958
  6,282
  6,621
  6,976
  7,348
  7,737
  8,143
Debt-to-equity ratio
  4.490
  4.910
  5.260
  5.570
  5.850
  6.090
  6.300
  6.500
  6.670
  6.820
  6.970
  7.090
  7.210
  7.320
  7.420
  7.510
  7.600
  7.670
  7.750
  7.820
  7.880
  7.940
  7.990
  8.050
  8.100
  8.140
  8.190
  8.230
  8.270
  8.300
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  227
  265
  291
  318
  346
  375
  405
  436
  469
  502
  570
  606
  644
  684
  725
  768
  812
  859
  907
  958
  1,011
  1,066
  1,124
  1,184
  1,247
  1,313
  1,382
  1,454
  1,529
  1,608
Depreciation, amort., depletion, $m
  67
  70
  72
  75
  78
  80
  83
  86
  89
  93
  52
  56
  59
  63
  67
  71
  75
  80
  85
  89
  94
  100
  105
  111
  117
  123
  130
  137
  144
  152
Funds from operations, $m
  295
  335
  363
  393
  423
  455
  488
  522
  558
  595
  622
  662
  703
  747
  792
  839
  888
  939
  992
  1,047
  1,105
  1,166
  1,229
  1,295
  1,364
  1,436
  1,512
  1,591
  1,674
  1,760
Change in working capital, $m
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
Cash from operations, $m
  305
  346
  375
  405
  436
  468
  502
  536
  573
  610
  638
  678
  721
  765
  811
  858
  908
  960
  1,014
  1,070
  1,129
  1,191
  1,255
  1,322
  1,393
  1,466
  1,543
  1,623
  1,708
  1,796
Maintenance CAPEX, $m
  -21
  -23
  -26
  -28
  -31
  -34
  -36
  -39
  -42
  -45
  -49
  -52
  -56
  -59
  -63
  -67
  -71
  -75
  -80
  -85
  -89
  -94
  -100
  -105
  -111
  -117
  -123
  -130
  -137
  -144
New CAPEX, $m
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -93
Cash from investing activities, $m
  -49
  -52
  -56
  -60
  -64
  -68
  -72
  -76
  -81
  -85
  -91
  -95
  -101
  -106
  -112
  -118
  -124
  -130
  -137
  -145
  -151
  -159
  -168
  -176
  -185
  -195
  -204
  -215
  -226
  -237
Free cash flow, $m
  256
  294
  319
  345
  372
  400
  430
  460
  492
  525
  547
  583
  620
  659
  699
  741
  784
  829
  877
  926
  977
  1,031
  1,087
  1,146
  1,207
  1,271
  1,338
  1,408
  1,481
  1,558
Issuance/(repayment) of debt, $m
  -188
  114
  119
  124
  129
  135
  140
  145
  151
  157
  163
  170
  176
  184
  191
  199
  207
  216
  225
  235
  245
  256
  267
  279
  292
  305
  320
  334
  350
  367
Issuance/(repurchase) of shares, $m
  82
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -106
  114
  119
  124
  129
  135
  140
  145
  151
  157
  163
  170
  176
  184
  191
  199
  207
  216
  225
  235
  245
  256
  267
  279
  292
  305
  320
  334
  350
  367
Total cash flow (excl. dividends), $m
  150
  408
  438
  469
  501
  535
  569
  606
  643
  682
  711
  753
  797
  842
  890
  939
  991
  1,045
  1,102
  1,161
  1,222
  1,287
  1,354
  1,425
  1,499
  1,576
  1,658
  1,742
  1,831
  1,925
Retained Cash Flow (-), $m
  -310
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -36
  -37
  -39
  -41
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  -160
  395
  424
  455
  487
  520
  554
  589
  626
  665
  692
  734
  777
  822
  869
  917
  968
  1,021
  1,077
  1,135
  1,195
  1,259
  1,325
  1,394
  1,467
  1,542
  1,622
  1,705
  1,793
  1,884
Discount rate, %
  11.30
  11.87
  12.46
  13.08
  13.74
  14.42
  15.14
  15.90
  16.70
  17.53
  18.41
  19.33
  20.29
  21.31
  22.37
  23.49
  24.67
  25.90
  27.19
  28.55
  29.98
  31.48
  33.06
  34.71
  36.44
  38.27
  40.18
  42.19
  44.30
  46.51
PV of cash for distribution, $m
  -144
  316
  298
  278
  256
  232
  206
  181
  156
  132
  108
  88
  70
  55
  42
  31
  23
  16
  11
  7
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Choice Hotels International, Inc. is a hotel franchisor. The Company's segments include Hotel Franchising, SkyTouch Technology and Corporate & Other. It franchises lodging properties under brand names, including Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Extended Stay Hotel, Cambria hotels & suites, and Ascend Hotel Collection. The Company had 6,514 hotels open and 775 hotels under construction, awaiting conversion or approved for development, as of December 31, 2016, representing 516,122 rooms open and 62,547 rooms under construction, awaiting conversion or approved for development in 50 states, the District of Columbia and over 40 countries and territories outside the United States. Its domestic franchising operations are conducted through direct franchising relationships, while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships.

FINANCIAL RATIOS  of  Choice Hotels International, Inc. (CHH)

Valuation Ratios
P/E Ratio 36
Price to Sales 5.4
Price to Book -16.1
Price to Tangible Book
Price to Cash Flow 32.9
Price to Free Cash Flow 40.3
Growth Rates
Sales Growth Rate 7.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.4%
Cap. Spend. - 3 Yr. Gr. Rate -3.2%
Financial Strength
Quick Ratio 202
Current Ratio 0
LT Debt to Equity -270.1%
Total Debt to Equity -270.4%
Interest Coverage 6
Management Effectiveness
Return On Assets 21.4%
Ret/ On Assets - 3 Yr. Avg. 23.3%
Return On Total Capital 29.3%
Ret/ On T. Cap. - 3 Yr. Avg. 32.6%
Return On Equity -39.3%
Return On Equity - 3 Yr. Avg. -32.7%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 43.1%
Gross Margin - 3 Yr. Avg. 43.9%
EBITDA Margin 27.5%
EBITDA Margin - 3 Yr. Avg. 28.2%
Operating Margin 25.8%
Oper. Margin - 3 Yr. Avg. 26.8%
Pre-Tax Margin 21.6%
Pre-Tax Margin - 3 Yr. Avg. 22%
Net Profit Margin 15%
Net Profit Margin - 3 Yr. Avg. 15.4%
Effective Tax Rate 30.5%
Eff/ Tax Rate - 3 Yr. Avg. 30.5%
Payout Ratio 33.1%

CHH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHH stock intrinsic value calculation we used $1041 million for the last fiscal year's total revenue generated by Choice Hotels International, Inc.. The default revenue input number comes from 0001 income statement of Choice Hotels International, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CHH stock valuation model: a) initial revenue growth rate of 10.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 11.3%, whose default value for CHH is calculated based on our internal credit rating of Choice Hotels International, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Choice Hotels International, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CHH stock the variable cost ratio is equal to 69.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CHH stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.2% for Choice Hotels International, Inc..

Corporate tax rate of 27% is the nominal tax rate for Choice Hotels International, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CHH stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CHH are equal to 25.1%.

Life of production assets of 12.3 years is the average useful life of capital assets used in Choice Hotels International, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CHH is equal to -9.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-183.772 million for Choice Hotels International, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 55.627 million for Choice Hotels International, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Choice Hotels International, Inc. at the current share price and the inputted number of shares is $4.9 billion.

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