CHOICE HOTELS INTERNATIONAL INC /DE (CHH) stock intrinsic value fair value estimate & owner earnings analysis

Choice Hotels is a hotel franchisor: it licenses brands such as Comfort Inn, Quality Inn, Sleep Inn, Cambria, and the WoodSpring Suites and Everhome Suites extended-stay brands to independent hotel owners in exchange for royalty and other franchise fees, plus a smaller base of owned and managed properties. In August 2022 it acquired Radisson Hotels Americas, adding roughly 40% more revenue and a meaningfully larger upscale and international footprint. Because that deal reshaped the company's scale and mix, we anchored this valuation on the three full years since the acquisition (2023-2025) rather than on the smaller pre-acquisition business or on the distorted 2020-2022 COVID-recovery and transition years. Over 2023-2025, normalized owner earnings (operating cash flow less the swing in working capital, less stock-based compensation, less the capital spending needed just to maintain the existing hotel and technology base) came out to $2.88, $2.52, and $3.98 per diluted share. We used the middle of those three years, about $2.88 per share, as the starting point for our forecast, rather than the most recent year, because 2025's jump was driven almost entirely by the reversal of a one-time working-capital timing swing the company itself called out (a tax-credit purchase and the final installment of an old transition-tax obligation) — it is not a change in the underlying run rate. On that basis, owner earnings actually grew only modestly, and the size of the swing is a reminder that any single year's cash flow can be noisy for a business with this fee structure. The business itself is showing some real strain worth being direct about: in the U.S. franchise system, the number of properties and rooms both declined in 2025 after three years of growth, and royalty fee revenue has now fallen two years in a row, as softer demand in the economy and midscale segments (Choice's traditional base) outweighed a rising average royalty rate. The offsetting growth engine has been the extended-stay brands (WoodSpring Suites, Everhome Suites) and the upscale/international mix added by Radisson, plus a large ongoing share buyback program that has cut the share count by roughly 4% per year, which lifts per-share results even when total earnings are flat. Our base case assumes owner earnings per share grows a modest 4-5% annually for the next five years (low single-digit underlying growth from royalty rate gains and extended-stay unit growth, plus the ongoing buyback), slowing to about 3% per year after that as the buyback pace and unit growth both mature. Beyond year 10, we treat the business as a durable royalty perpetuity growing about 1% a year: franchise agreements expire and are replaced on an ongoing basis, and the cost of winning and renewing them is already paid for and expensed inside the owner earnings figure, so this is not a wasting asset requiring a separate markdown. On these assumptions, we estimate the shares are worth about $73 today. We should flag that the value attributable to the years beyond our 10-year forecast makes up roughly two-thirds of this total, which is typical for a royalty-style franchisor but does mean the estimate leans heavily on the business still collecting fees on a large hotel network a decade from now. Our bear case assumes the 2024-2025 erosion in U.S. units and royalty fees continues and deepens for several more years — domestic RevPAR keeps softening, unit losses in the economy and midscale segments outpace extended-stay and international growth, and Radisson integration synergies disappoint — with owner earnings per share falling roughly 6%, 5%, 4%, 3%, then 2% over the next five years before leveling off, and no further real growth after that. Given Choice's meaningful debt load (shareholders' equity is a thin sliver of the balance sheet), a genuinely bad run of operating results would also make refinancing that debt more expensive and likely slow or halt the share buyback, both of which are reflected in this case's flatter, lower path. That works out to roughly $40 per share. Our bull case assumes the extended-stay rollout and Radisson-driven international and upscale growth scale up successfully, royalty rates keep rising, and the buyback continues at its current pace, producing high-single-digit owner earnings per share growth for several years before settling into mid-single digits — worth roughly $101 per share. We want to be clear this case is built on company-specific execution (brand and unit growth, integration synergies, capital return), not on a hoped-for rebound in travel demand generally. Putting these together, the margin-of-safety price sits at a meaningful discount to our base-case estimate, given the real deceleration underway in the core U.S. franchise business and the leverage on the balance sheet; it is in the area of $51 per share, and it assumes the unit and royalty-fee trends show signs of stabilizing rather than still eroding. One accounting judgment worth noting: we treated Choice's ongoing spending to sign and renew franchise agreements, and the related amortization of those costs, as already fully captured in operating cash flow (the company pays cash for new agreements and amortizes older ones every year), so we did not treat this as a separate wasting intangible requiring an additional adjustment to the growth outlook — it is a recurring, self-renewing cost of the franchise business already reflected in the numbers. We found nothing in the filings we were unable to reconcile.