Seeking Alpha
Profile| Send Message|
( followers)  

Considering the sorry state of the hotel industry, Wyndham Worldwide (NYSE:WYN) had a solid report with the most important metric for hotels - RevPAR (Revenue per available room) - falling much less than the industry. While I realize there is a decent debt load here, I am confused by the very low valuation when peers are much higher. I must be missing something - but that gulf was the reason I bought the stock in the first place, and instead of closing the gap, the gap has widened as investors have chased into its peers leaving WYN in the dust.

WYN is valued at 8x forward estimates currently whereas Marriott (NASDAQ:MAR) is at 24x, and Choice Hotels (NYSE:CHH) is at 16x. That is just one example - WYN is at quite a gulf to almost every stock in the group, hence I thought we'd made a lot more money on this name during the "recovery of economy" rally. Instead, the stock has been asleep for 3 months - hence the reason we don't have a huge stake; it's been a non-performer. The only thing I can think of is there must be some penalty for its large timeshare exposure, but again, many hotel companies have timeshare exposure and that doesn't explain this much of a gulf.

In retrospect, it would have made a lot more money for us to chase after WYNN at 60x forward estimates than WYN at 6x. I was off by one 'N'. I thought the budget hotel thing would be a big benefit in this economy, but it appears not to be a favorite with investors.

A quick look at earnings.... via Reuters

  • Wyndham Worldwide Corp (WYN), operator of Ramada, Days Inn and Super 8 hotels, posted better-than-expected quarterly profit on Wednesday as expenses were cut 20 percent.
  • Wyndham, also the world's largest timeshare operator, affirmed its full-year outlook, citing its emphasis on economy chains, and its shares rose 2 percent in early trading. "Generally, when things are tough, (people) tend to look for ways to get more value for their money," Chief Executive Stephen Holmes said in a phone interview.
  • The company posted second-quarter net profit of $71 million, or 39 cents a share, compared with $98 million, or 55 cents a share, a year earlier. Excluding one-time items, earnings were 41 cents per share, besting analysts' average forecast of 37 cents, according to Reuters Estimates. Wyndham's own forecast was 36 cents to 41 cents per share.
  • Revenue slumped 19 percent to $920 million, but expenses fell about 20 percent. Holmes said the company trimmed costs in the second quarter by adding technology that smoothed the process of exchanging timeshares, saving a "couple million dollars" during the period.
  • Wyndham also saw the benefit of the restructuring of its international operations that it launched last year, and a cutback in its timeshare business.
  • Revenue per available room, or RevPAR, for its hotel properties fell 14.7 percent systemwide in the second quarter but rose from the 2009 first quarter. Holmes said he expects continued stabilization in RevPAR.
  • ... compared with a 19.5 percent drop for the entire industry.

Guidance

  • Wyndham said it expects to earn 53 cents to 57 cents per share in the third quarter. Analysts expect 58 cents.
  • The company expects full-year revenue of $3.5 billion to $3.9 billion and adjusted EBITDA of $760 million to $810 million.

[May 1, 2009: Bookkeeping - Creating New Position in Wyndham Worldwide]

[May 1, 2009: A Stroll Through the Hotel Space]

Disclosure: Long Wyndham Worldwide in fund; no personal position

Source: Wyndham Worldwide's Surprisingly Solid Earnings Report