Wyndham: Resilience in challenging times

This leading hospitality company has an impressive earnings surprise history and a share price hovering close to a 52-week high.

By Zacks.com Jun 20, 2012 1:47PM

By Zacks Equity Research  Resilience

Headquartered in Parsippany, N.J., Wyndham Worldwide Corporation (WYN) offers different hospitality products and services to individual customers and business clients in the U.S. and worldwide under the brands Wyndham Hotel Group, Wyndham Exchange & Rentals and Wyndham Vacation Ownership. The company has a current market cap of $7.55 billion.

The company has an impressive earnings surprise history and a share price hovering close to a 52-week high. Shares of this Zacks No. 1 Rank ("strong buy") have gained approximately 39.5% so far this year.

A strong customer base, renowned brands and fee-for-service business model are positives for this stock, making it resilient to the challenging environment. The strength was well reflected through its first-quarter 2012 results, which included year-over-year earnings=per-share growth of 36% and a positive surprise of 9.1% over the Zacks consensus estimate.

An upbeat quarter and better guidance

On April 25, Wyndham Worldwide Corporation posted first-quarter 2012 earnings of 60 cents per share, surpassing the Zacks consensus estimate of 55 cents and the prior-year earnings of 44 cents. Strength in Vacation Ownership and the Hotel businesses benefited the quarter.

Net sales of $1,036 million comfortably surpassed the Zacks consensus estimate of $1,008 million and grew 9% year over year, mirroring sales increases across Lodging (up 24%), Vacation Ownership (up 11%) and Vacation Exchange and Rentals (up 1.4%).

The better-than-expected results prompted management to raise its 2012 earnings per share guidance to the range of $3.00 to $3.15, compared to the earlier outlook of $2.85 to $3.00. However, the company reiterated its revenue projection of $4.425 billion to $4.6 billion.

The company's strong free cash flow generation and optimum capital allocation approach have helped it to enhance shareholders’ returns from time to time via dividend and share repurchase activities. The company bought back approximately 3.6 million shares for $150 million during the quarter, and increased its share repurchase authorization by $750 million to $940 million. The company last hiked its quarterly dividend in the fourth-quarter 2011 by 53% to 23 cents per share.

Earnings estimate revisions

Over the last 60 days, the Zacks consensus estimate for 2012 increased 6.4% to $3.16, while the 2013 guidance has ascended 4.1% to $3.55. The 2012 estimate is a penny above the high-end of the company's guidance range, and implies year-over-year growth of 26.9%. The 2013 estimate reflects an increase of 12.3%.

Compelling valuations

Wyndham Worldwide Corporation currently trades at a forward price to earnings multiple of 16.4 times, reflecting a 26.1% discount to the peer group average of 22.2 times. With respect to return on equity (ROE), the stock also looks attractive. It has a trailing 12-month ROE of 18.1%, which is above its peer group average of 15.1%. This implies that the company reinvests its earnings more efficiently than its peer group.

However, on a price-to-book basis, shares trade at 3.6 times, a 47.1% premium to the peer group average of 2.4 times. Given the company's compelling fundamentals, the premium valuation is justified and well supported by the long-term estimated EPS growth rate of 20% versus 16.7% for the peer group.

Chart revealing strength

Since the beginning of the year, shares of Wyndham Worldwide Corporation have been moving upward with minor lapses, and is now trading close to its 52-week high of $52.17. The stock has been consistently trading above its 200-day moving average since Oct. 26, 2011. It has also remained above the 50-day moving average since June 6, 2012.

Volume is fairly strong, averaging roughly 2,130K daily. Wyndham Worldwide Corporation, which competes with Marriott International, Inc. (MAR), has outperformed the S&P 500 since Jan. 19, 2012. The year-to-date return for the stock is 39.5% compared with the S&P 500's return of 6.9%.
















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