Earnings Scorecard: Wyndham - Analyst Blog

On October 26, Wyndham Worldwide Corporation (WYN) reported its third quarter fiscal 2010 adjusted earnings of 68 cents per share, ahead of the Zacks Consensus Estimate of 63 cents and the year-earlier quarter's earnings of 58 cents per share.

Given below is our report on the recent earnings announcement as well as subsequent analyst estimate revisions over short and long-term periods.

Earnings Report Flashback

Revenues jumped 5% year over year to $1,065 million in the quarter, reflecting solid sales momentum in each of Wyndham's three business units. However, revenue fell short of the Zacks Consensus Estimate of $1,070 million.

(Read our full coverage on this earnings report: Wyndham Beats on EPS,Ups Guidance)

Earnings Estimate Revisions — Overview

Following the release of Wyndham's third quarter results, estimate revision trends among the analysts depict a positive outlook. Let's dig into the earnings estimate details.

Agreement of Estimate Revisions

Over the last 30 days, a positive trend has been noticed. Out of 7 analysts, 5 have raised their estimates for the fourth quarter of 2010 and fiscal 2010. None of the analysts have reduced their estimates. For fiscal 2011, 4 out of 8 analysts have made upward revision to the estimates, while one has made downward revision. The trend was almost similar over the last 7 days.

The analysts have raised the estimates for the coming quarters as well as for fiscal year 2010 and 2011 based on third quarter results and increased fiscal year guidance by the company. They also remain optimistic about the lodging industry based on the improving corporate and group demand trends and favorable rates.

Moreover, the company expects to generate strong free cash flow and deploy the cash to shareholders via dividends and share repurchases.Wyndham's accrual for loan losses on timeshare notes decreased during the quarter, and analysts project further declines in lower loan loss provisions in the timeshare business as the year unfolds.

Moreover, Wyndham is expanding internationally as well as domestically, through acquisitions. Additionally, with the acquisition of ResortQuest, a vacation rental firm in the U.S, Wyndham has become the world's largest full-service vacation rental business.

However, one analyst has reduced its estimates for fiscal 2011, based on company's EBITDA guidance and higher tax rate projection for next year.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for Wyndham has been on an upturn over the last 30 days. Following the release of third quarter results, estimate for the fourth quarter was upped by 3 cents to 43 cents. The estimates for both fiscal 2010 and 2011 were raised by 9 cents and 6 cents to $1.96 and $2.08, respectively. 

Our Recommendation

In the third quarter, we believe the company benefited primarily from a recovery in demand leading to higher revenue per available room as well as occupancy and strong operational performance by the Vacation Ownership business. Going forward, we expect Wyndham to benefit from its repositioning to a more fee-for-service-based business and strategic focus on Vacation Exchange and Rental business. Additionally, we expect the company to generate a strong free cash flow and return the capital to shareholders.

However, we believe Wyndham is not yet totally immune to challenges stemming from an economic slowdown. Moreover, with around 30% international exposure, Wyndham's revenue is highly sensitive to currency fluctuation. Additionally, we remain cautious on the stock based on increased competition and interest rate burden.

Wyndham currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our long-term Neutral recommendation on the stock.