On Mar 13, 2015, we issued an updated research report on Wyndham Worldwide Corporation WYN.
Wyndham reported mixed fourth-quarter and full-year 2014 results on Feb 10. While earnings beat the Zacks Consensus Estimate, revenues missed the same.
Adjusted earnings of 90 cents per share in the fourth quarter were up 23% year over year, thanks to a rise in revenues, a decline in interest expense and lower share count. Net revenue grew 3% year over year to $1.231 billion in the quarter driven by growth across all three operating segments. Systemwide RevPAR grew 3% in the quarter on an 8.6% domestic increase in RevPAR.
A gradual recovery in the U.S. economy is driving the hotel industry. Wyndham is generating room-rate gains in the domestic upscale and midscale segments with an increase in occupancy. Growth in hotel demand is exceeding supply, thereby allowing the company to raise its room rates and resulting in domestic RevPAR improvement.
Given the strong results, Wyndham also raised its earnings and revenue guidance for 2015. The company now expects adjusted earnings per share in the $4.75–$4.90 range, up from $4.70–$4.85 projected earlier. The company expects revenues in the range of $5.450 billion–$5.550 billion, up from its prior forecast of $5.40 billion –$5.50 billion.
We believe that Wyndham’s efforts and initiatives to boost traffic have resulted in a positive outlook for the company. In order to survive in a competitive environment, Wyndham has devised new ways to increase traffic, which include organizing television and digital media and marketing 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 while reducing development costs for franchisees.
Meanwhile, Wyndham is consistently trying to expand its presence worldwide and has expansion plans for the Asia Pacific region, Europe, Middle East, Africa and Indian Ocean (EMEAI) region. Moreover, the acquisition of Dolce Hotels and Conference Centers (Feb 2015) located across seven countries in Europe and North America would further expand its presence worldwide. Overall, we believe a strong developmental pipeline and Wyndham’s transition to a growing fee-for-service-based business are expected to spur growth for this Zacks Rank #2 (Buy) stock.
However, owing to international expansion, the company remains vulnerable to headwinds in the regions where it operates. Despite immense growth potential, a sluggish economy in Brazil and Argentina are weighing on demand. Moreover, uncertainty in Middle East, macroeconomic factors in Venezuela and government austerity and the ensuing slowdown in China are expected to dampen revenues. Meanwhile, Japan is experiencing pressure owing to a rise in taxes in the region, which might hurt revenues of the brand.
In fact, other hoteliers like Marriott International Inc. MAR, Hyatt Hotels Corp. H and Starwood Hotels and Resorts Worldwide Inc. HOT are also facing troubles in these regions.
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