Wyndham Reiterated at Neutral - Analyst Blog


We are maintaining our long-term Neutral recommendation on Wyndham Worldwide Corporation ( WYN ) on the back of solid fourth-quarter 2011 results, strong international market, increased earnings outlook for fiscal 2012 and a 53% hike in quarterly dividend. However, economic uncertainty in Europe, increased competition and currency fluctuations remain major headwinds for the company.

Wyndham reported fourth quarter 2011 adjusted earnings of 47 cents per share, which surpassed the Zacks Consensus Estimate of 43 cents and were a penny higher than the year-ago quarter. The increase was mainly driven by higher revenue per available room (RevPAR) in the Lodging business as well as strong operational performance of Vacation Ownership businesses and incremental contributions from acquisitions in its Vacation Exchange and Rentals business. The company's share repurchase program also aided the earnings growth.

Net revenue increased 7% year over year to $1,000 million in the reported quarter, reflecting a modest adjusted sales momentum across Wyndham's three business units and substantial contributions from recent acquisitions. However, revenues fell short of the Zacks Consensus Estimate of $1,004 million.

For fiscal 2012, management raised its earnings per share guidance range from $2.72-$2.82 to $2.85-$3.00. However, management continues to expect revenue in the range of $4.4-$4.6 million and adjusted EBITDA between $1.03 billion and $1.06 billion.

We expect Wyndham to benefit from its shift to a more fee-for-service based business, free cash flow generation and strategic focus on Vacation Exchange as well as Rental business through a series of acquisitions including James Villa Holidays and Resort Company LLC and thus remain optimistic on the stock.

Moreover, the company is strengthening its presence in the politically-stable Middle Eastern markets as well as in Asian markets like China and India. The company also remains focused on enhancing shareholder value and has raised its quarterly dividend by 53% to 23 cents during the fourth quarter.

The Lodging business of the company is also experiencing growth. During the fourth quarter, Lodging segment's revenues jumped 15% year over year to $188 million, driven by a 5.0% rise in RevPAR and opening of a new hotel in Orlando.

Additionally, to ensure growth in the lodging business, the company has undertaken a strategic initiative named Apollo to drive incremental revenues from its franchises and strengthen its brands. Management noted that most of its brands have launched new websitesand online bookings currently represent nearly one-third of total bookings.

Furthermore, Wyndham plans to add Tripaadvisor.com ratings to all of WYN's websites in 2012. The company has also launched an umbrella cross brand website, WyndhamHotelGroup.com, which is designed to increase traffic and attract consumers who prefer online shopping. Wyndham also intends to roll out additional initiatives during the course of the year including new mobile sites and apps to drive more online business and develop a more profitable channel mix.

However, we remain cautious regarding Wyndham's business in Europe due to economic uncertainty, especially in the UK (second largest European market), where austerity measures are dampening consumer confidence. Due to the ongoing economic turmoil in Europe, the company is experiencing shortening of booking windows as the consumers have became more price sensitive. Additionally, the company faces stiff competition from major hotel chains like Intercontinental Hotels Group plc ( IHG ) and Marriott International Inc. ( MAR ) both nationally and internationally and from other independent companies in the regional markets. Hence, we remain Neutral on the stock.

INTERCONTL HTLS ( IHG ): Free Stock Analysis Report
MARRIOTT INTL-A ( MAR ): Free Stock Analysis Report

WYNDHAM WORLDWD ( WYN ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: IHG , MAR , WYN



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