Stifel: Buy The Weakness In Wyndham Worldwide Before Spin-Off

Wyndham Worldwide Corporation WYN recently announced plans to spin off its hotel group into a separately traded public company. The spin-off is expected to be completed in the second quarter of 2018.

The company posted its first-quarter results Wednesday, showing an earnings beat and an upward revision to fiscal 2018 adjusted earnings per share guidance.

The Analyst

Stifel analyst Simon Yarmak has a Buy rating on the shares of Wyndham Resorts and lowered the price target from $135 to $131.

The Thesis

Wyndham Worldwide shares are undervalued, with the recent sell-off after the quarterly print presenting an opportunity for investors to buy the dip ahead of the spin-off, Yarmak said in a Sunday note, citing his updated model for the hospitality name. (See the analyst's track record here.) 

The incremental information in Wyndham's Q1 report was largely positive, with adjusted EBITDA beating estimates and GlobalRevPAR of 4.7 percent being the highest ever, the analyst said. The post-earnings sell-off, according to the analyst, is due to investor worries over free cash flow generation, loan loss and  a sequential shrinking of the hotel pipeline.

FCF suffered due to separation-related costs and timing differences, Yarmak said. 

"The timeshare business had some of the best topline growth among its peer set and loan loss was within the 18-20-percent guidance range," the analyst said. 

Yarmak doesn't see the issues as alarming, but said there was an "element of panic selling."

The valuation of Wyndham's shares suggests that the future public companies, namely the timeshare business Wyndham Destinations and Wyndham Hotels & Resorts, will trade at a significant discount to peer multiples.

The Price Action

Wyndham Worldwide shares have lost about 7.7 percent year-to-date.

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