Wyndham Worldwide's Expansion Plans in Place - Analyst Blog

On Jun 19, 2014, we issued an updated research report on Wyndham Worldwide Corporation WYN.

On Apr 24, this leading hotelier posted first quarter 2014 results with earnings beating the Zacks Consensus Estimate and revenues matching the same. Adjusted earnings of 78 cents increased 9.9% year over year owing to a year-over-year increase in revenues and lower share count.

Net revenue grew 5.6% year over year to $1.19 billion driven by revenue growth in all the three operating segments. With the gradually improving economy, the U.S. hotel industry has started to gain momentum. Wyndham has started witnessing room-rate gains in the domestic upscale and midscale segments with an increase in occupancy.

It is seen that the operating environment in the international market is better than the domestic market, which have been driving hoteliers to increase their market share globally. Wyndham is thus consistently trying to expand its presence worldwide. A significant portion of the company's properties are situated outside the U.S. including Asia, Middle East, Europe and Latin America. This gives the company wide international exposure.

Also, the company derives a substantial chunk of its revenues from its vacation ownership or timeshare business, which has solid long-term potential. Wyndham Vacation Ownership is the world's largest vacation ownership business in terms of the number of resorts, units, owners and revenues. The vacation ownership industry is expected to grow further owing to increasing household income and ownership satisfaction and an inclination toward repeat purchases and frequent trips.

In order to survive in the tough economic environment, Wyndham is also devising new ways to increase traffic. The company is launching new prototype hotels that aim at enhancing overall guest experience, while reducing development costs for franchisees. Moreover, the company is also busy organizing television and digital media campaigns, which will help in increasing brand awareness while driving direct bookings.

Additionally, the company organized podium presentations in the first quarter to effectively and efficiently introduce prospective owners to the benefits of timeshare. In 2013, the company rolled out podium presentations across most of North America for approximately 40% of current tours and expects it to increase to 60.0% by 2014. The company expects these new tools to drive growth. Despite the economic turmoil, we appreciate the company's efforts to consistently enhance shareholder returns. Wyndham is consistently rewarding shareholders through repurchases and dividend.

Despite Wyndham's immense growth potential, a deteriorating political situation and a weak economy have decelerated overall Latin American sales. Moreover, tighter credit markets in China, the political turmoil in Thailand, and Russian actions in Crimea have further added to the woes. Further, upcoming elections in Brazil and Indonesia make the situation more unpredictable.

According to the European Central Bank, though financial markets in Europe have improved, they are yet to reach pre-crisis levels. Given Wyndham's significant presence in the region, the current sluggishness in Eurozone may limit the growth of vacation rental businesses. Eurozone recovery is not expected to be strong enough in 2014, thereby remaining a concern for this Zacks Rank #2 (Buy) company.

Other Stocks to Consider

Better-ranked stocks in the hotel industry include Home Inns & Hotels Management Inc. HMIN, Marriott Vacations Worldwide Corporation VAC and Hilton Worldwide Holdings Inc. HLT. While Home Inns & Hotels Management sports a Zacks Rank #1 (Strong Buy), Marriott Vacations Worldwide and Hilton Worldwide carry a Zacks Rank #2.

 

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