On Aug 5, we maintained an Outperform rating on the leading
Wyndham Worldwide Corporation
), following its better-than-expected second-quarter 2013 results
and increased earnings guidance. Wyndham's strong brand power,
solid pipeline and significant international exposure should bode
well for future growth.
Why the Reiteration?
On Jul 24, 2013, Wyndham posted solid second-quarter 2013
results. The company's adjusted earnings of 98 cents per share
surpassed the Zacks Consensus Estimate by 8.9% and also grew
12.6% year over year. Higher top line growth and solid margin
expansion pushed up the quarterly earnings.
Net revenue grew 10% year over year and also beat the Zacks
Consensus Estimate by 8.3%. Wyndham's strong Lodging as well as
Vacation Ownership businesses played a major role in augmenting
the quarterly sales. Following this better-than-expected
performance, Wyndham raised its full-year earnings per share
guidance from the range of $3.60 - $3.70 to $3.66 - $3.76.
The U.S. hotel industry is slowly improving as the overall
economy begins to look up. The company continues to generate
room-rate gains in the domestic upscale and mid-scale segments
with an increase in occupancy levels. According to Smith Travel
Research, the U.S. supplies are expected to be up nearly 1% in
2013. With a low supply growth environment the company will be
able to raise its room rate, going forward.
Wyndham's vacation ownership or timeshare business has solid
long-term potential. This fee-for-service business reduces
capital requirement, resulting in higher free cash flow. In 2009,
Wyndham introduced a new initiative, Wyndham Asset Affiliation
Model (WAAM), which will help it to rebalance its portfolio by
increasing contributions from fee-for-service businesses. The
company expects to achieve its WAAM target of 15% to 20% of gross
Vacation Ownership Interest (VOI) sales over the next five
We believe the company's back-to-back acquisitions,
substantial development pipeline and significant international
exposure will further boost its growth, going ahead. Moreover,
regular share repurchase activity and dividend distribution
helped augment investors' confidence for this Zacks Rank #2 (Buy)
Other Stocks to Consider
Other players in the hotels and casino sector that are
currently performing well include
Caesars Entertainment Corporation
Marriott Vacations Worldwide Corp.
Hyatt Hotels Corporation
). All these companies carry a Zacks Rank #2 (Buy).
CAESARS ENTERTN (CZR): Free Stock Analysis
HYATT HOTELS CP (H): Free Stock Analysis
MARRIOT VAC WW (VAC): Free Stock Analysis
WYNDHAM WORLDWD (WYN): Free Stock Analysis
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