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Wyndham Worldwide Corporation (WYN) a hospitality company engaged in offering individual as well as business customers a range of hospitality products and services, is slated to release its third quarter 2010 results on Tuesday, October 26, before market open. The current Zacks Consensus Estimate for the third quarter is 63 cents per share, representing an annualized growth of 9.36%.

With respect to earnings surprises, over the trailing four quarters, Wyndham has outperformed the Zacks Consensus Estimate for all four quarters. The average earnings surprise was a positive 13.70%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Previous Quarter Performance

Wyndham recorded second quarter 2010 earnings of $95 million or 51 cents per share, well ahead of the Zacks Consensus Estimate of 41 cents per share and the company’s previous guidance of 38 cents to 42 cents per share. The increment was driven by better-than-expected business in Vacation Exchange and Rentals, along with a lower effective tax rate and the favorable net effect of foreign currency.

The company is also seeing improving business performance in North America. In the year-earlier quarter, Wyndham earned $75 million or 41 cents per share on an adjusted basis.

Total revenue spiked up 5% year over year to $963 million in the quarter under review, reflecting the sales momentum in each of Wyndham’s three business units. Revenues also outpaced the Zacks Consensus Estimate of $937 million.

The best segment performer was Vacation Ownership, as revenues climbed 8.1% from the prior-year quarter while sales from Gross Vacation Ownership Interest escalated 13%, owing to a 16% increase in volume per guest in a backdrop of relatively flat tour flow.

During the quarter, Wyndham also acquired the Tryp hotel brand, which included 92 hotels or 13,200 rooms in Europe and South America.

Outlook

For the third quarter of 2010, Wyndham expects adjusted earnings per share to be in the range of 60 cents to 64 cents.

Wyndham raised its full-year 2010 outlook. The company expects adjusted earnings to be in the range of $1.78–$1.88 per share compared with its prior guidance of $1.56–$1.71. The revenue guidance was also increased to $3.7 –$4.0 billion from $3.6–$3.9 billion. Adjusted EBITDA is expected to remain in the range of $825–$860 million compared with the prior projection of $805–$840 million.

Estimates Revisions Trend

Estimates have not moved up significantly in the last 30 days, implying that the analysts are maintaining their view on the stock. The current Zacks Consensus Estimate is $1.87 for 2010 (reflecting a year-over-year growth of 4.10%) and $2.02 for 2011 (reflecting a year-over-year growth of 7.67%).

Agreement of Estimate Revisions

In the last 30 days, 1 out of 7 analysts has raised the estimate for the third quarter of 2010 and 1 out of 8 analysts has increased the estimates for fiscal 2010 and 2011. None of the analysts has moved in the opposite direction.

Analyst has raised the estimates as it remains optimistic about the lodging industry based on the improving corporate and group demand trends and favorable rates. The cash position of the company is also strong. Moreover, the analyst foresees further declines in lower loan loss provisions in the timeshare business as the year unfolds.

However, there has been no movement in estimates by the analysts regarding their outlook on Wyndhamover the last 7 days.


Magnitude of Estimate Revisions

There has been no change, in the last 60 days, in the earnings estimate of 63 cents and $1.87 for the third quarter and fiscal 2010 as seen from the magnitude of the Zacks Consensus Estimate trend. Therefore, the analysts expect the company to report in line.

In the last 30 days, estimates for fiscal 2011 remained unchanged at $2.01, but increased by 1 cent to $2.02 in the last 7 days.

Our Take

We believe Wyndham should report third quarter results at the higher end of its guidance, given that the lodging industry is showing signs of recovery evidenced by the improvement in RevPAR.

We remain positive on the stock as 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. Moreover, with lower cash taxes, we expect the company to generate a strong free cash flow and return the capital to shareholders.Additionally, considering the reviving lodging industry and increasing occupancy rate, we expect the top-line improvement to gain momentum in the near future.

The company has also recently acquired ResortQuest, a vacation rental firm in the U.S., for $56 million. We view the deal as strategically positive, given that it will expand vacation rental business in the domestic market where Wyndham’s market share is low.

Accordingly, we have a Zacks #1 Rank (short-term Strong Buy recommendation) on the shares. We also reiterate our long-term Outperform rating.

One of Wyndham’s primary competitors, Marriott International Inc. (MAR) reported its third quarter 2010 earnings of 22 cents, in line with the Zacks Consensus Estimate. Another competitor Starwood Hotels & Resorts Worldwide Inc. (HOT) will release its third quarter result on October 28, 2010.

Source: Wyndham Earnings Preview