We are maintaining our Neutral recommendation on Wyndham Worldwide Corporation (WYN), a hospitality company engaged in offering a wide array of hospitality products and services to individual consumers and business customers in the United States and internationally.
Wyndham reported fourth quarter 2010 adjusted earnings of 46 cents per share, which outpaced both the Zacks Consensus Estimate of 44 cents and the company’s guided range of 40 to 44 cents. The results were driven by higher revenue per available room (RevPAR) in the Lodging business, strong operational performance in the Vacation Ownership business and a lower effective tax rate.
Net revenue nudged up 2.6% year over year to $937 million in the quarter under review, reflecting a modest adjusted sales momentum across each of Wyndham’s three business units. However, revenues fell short of the Zacks Consensus Estimate of $942 million.
Management reaffirmed its guidance for 2011, which forecasts revenue in the range of $4.0–$4.2 billion and adjusted EBITDA of approximately $925–$955 million.
We expect Wyndham to benefit from its shift to a more fee-for-service-based business, free cash flow generation and strategic focus on Vacation Exchange as well as Rental business through a series of acquisitions including James Villa Holidays and ResortQuest and remain optimistic on the stock. Moreover, the company is strengthening its presence in Europe and Latin America as well as in the Asian markets like China and India. The company also plans to debut in Middle East by opening Wyndham Grand Hotel in spring 2011. The company also remains focused on enhancing shareholder value and has raised its quarterly dividend by 25% to 15 cents during the fourth quarter.
The lodging business of the company is also experiencing growth. During the fourth quarter, lodging segment revenues jumped 9% year over year to $163 million, driven by a 10% rise in RevPAR and other franchise fees. Wyndham continues to make efforts to grow the Wyndham Hotels and Resorts brand. Wyndham brand openings were up 60% in 2010. In the fourth quarter of 2010, the company opened over 2,000 rooms, reflecting property additions in Orlando, Chicago, Baltimore and Hawaii as well as international openings including Los Cabos, Mexico; Panama City, Panama and Surfer's Paradise in Australia. Additionally, to ensure growth in the lodging business, the company has undertaken a strategic initiative named Apollo to drive incremental revenues across its franchises and thereby strengthen its brands.
However, we remain cautious on the stock due to sluggish economic recovery as room rates have not increased significantly and currency fluctuation risk. Additionally, the company faces stiff competition from major hotel chains like Intercontinental Hotels Group plc (IHG) and Marriott International Inc. (MAR) both nationally and internationally and from other independent companies in regional markets. Hence, we remain Neutral on the stock.