Wyndham Hits 52-Week High on Solid Q2 and Increased Outlook - Analyst Blog

Shares of Wyndham Worldwide Corporation (WYN) hit a 52-week high of $79.24 on Aug 13. The company's share price has continued to gain momentum since it reported solid second quarter 2014 results and increased its outlook for 2014 on Jul 24. The company's closing price of $78.83 reflects a year-to-date return of over 8.3%.

Wyndham Worldwide's second-quarter adjusted earnings of $1.17 per share beat the Zacks Consensus Estimate by 3.5% and increased 19.4% year over year led by strong performance by the company's Lodging as well as Vacation Ownership businesses. Also, share repurchase activities drove the earnings. Net revenue grew 7.2% year over year to $1.34 billion in the quarter, beating the Zacks Consensus Estimate of $1.33 billion by 0.8% aided by quarterly sales.

Systemwide RevPAR grew 5.6% year over year on the back of an 8.8% domestic increase, partially offset by a 4.3% decline in international RevPAR due to unfavorable currency movements. The upside reflects an increase in global business travel that drove occupancy and room rates.

Going forward, U.S. hotel demand is expected to exceed supply in 2014, thereby leaving scope for the company to raise its room rate. Given the scenario, the company raised its earnings guidance for 2014 and expects it in the range of $4.34–$4.44 per share, up from $4.23–$4.33 guided earlier. Also, adjusted EBITDA guidance range was raised to $1.230–$1.245 billion from $1.215–$1.240 billion expected earlier. We note that estimates for 2014 and 2015 have largely moved upwards over the past 30 days.

We believe that Wyndham's efforts and initiatives to boost traffic have resulted in positive outlook for the company. In order to survive in the tough economic environment, Wyndham has devised new ways to increase traffic, which include organizing television and digital media campaigns to increase brand awareness while driving direct bookings. Also, the company is launching new prototype hotels that aim at enhancing the overall guest experience.

Overall, we believe strong developmental pipeline, significant international exposure and its transition to a growing fee-for-service-based business are expected to spur growth for this Zacks Rank #2 (Buy) stock.

Other stocks in the hotel industry worth considering include The Marcus Corporation (MCS), Marriott Vacations Worldwide Corp. (VAC) and Choice Hotels International Inc. (CHH). While Marcus Corporation sports a Zacks Rank #1 (Strong Buy), Marriott Vacations Worldwide and Choice Hotels International carry a Zacks Rank #2.