We are initiating coverage of Choice Hotels (CHH) with a narrow moat rating and $60 fair value estimate. The shares currently look slightly undervalued. Our fair value estimate is based on our forecast for 7% annual revenue growth over the next 10 years, driven by 4% and 3% annual growth in units and revenue per available room, respectively. We model Choice to leverage top-line growth, leading to operating margins expanding to 30% in 2025 from 26% in 2015. Choice's narrow moat is driven by an intangible brand and switching cost advantage in its asset-light business model (99% of revenue from franchised hotels), which we believe will continue to support strong returns on invested capital (123% on average the next five years, including goodwill), well above its 7.9% cost of capital.