We are reverting to a Neutral recommendation on the hotel
Wyndham Worldwide Corp.
) from Outperform, given increasing pressure on international
revenue per available room rate (RevPAR) and lingering
uncertainty in some geographic regions.
Why Back to Neutral?
Decelerating growth in a number of major emerging economies,
especially in Brazil, China and India, is a concern. Apart from
slower GDP growth in these nations, RevPAR of the company might
slow down on account of higher supply growth in a few emerging
markets. With expansion activities on the rise, Wyndham is
focusing on lower RevPAR regions and brands, which might limit
the company's international RevPAR growth. Also, the strength of
the dollar at the current level might add to the woes.
The soft economic condition in Europe continues to be a weak
point for Wyndham. The company has approximately 100,000 vacation
rental properties with more than 85,000 properties located in
Europe. Given its significant presence in Europe, the current
sluggishness in the Eurozone may limit the growth of its vacation
rental businesses. Although, the European nations have started
witnessing improvements, they are yet to reach pre-crisis levels.
Management expects budget sequestration in the U.S. to hamper the
company's business momentum in North America to some extent as
well. Reduced government spending on travel will likely hurt the
company's financials in 2013. The implementation of austerity
measures will result in higher taxes on consumers, which in turn
might result into low group and transient bookings.
However, despite these discouraging facts, numerous positive
attributes prevent us from being too pessimistic on the stock.
Strong second-quarter 2013 results, increased earnings guidance,
a strong developmental pipeline, significant international
exposure and transition to a greater fee-for-service-based
business should prove beneficial over the long term. Wyndham
currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other players in the same industry, which look attractive at
current levels, include
China Lodging Group, Limited
Marriott Vacations Worldwide Corp.
Hyatt Hotels Corp.
) all carrying a Zacks Rank #2 (Buy).
HYATT HOTELS CP (H): Free Stock Analysis
CHINA LODGING (HTHT): Free Stock Analysis
MARRIOT VAC WW (VAC): Free Stock Analysis
WYNDHAM WORLDWD (WYN): Free Stock Analysis
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