Wyndham Upgraded to Outperform – Analyst Blog

We are upgrading our rating on Wyndham Worldwide Corporation (WYN) to Outperform from Neutral.

 

The rating upgrade is based on second quarter 2010 earnings, which were well ahead of the Zacks Consensus Estimates, primarily driven by better-than-expected business in Vacation Exchange and Rentals. Additionally, Wyndham is experiencing a surge in demand with a gradual recovery of the global economy. Business travelers are returning, with leisure demand increasing as well. Wyndham also raised its fiscal year 2010 outlook. 

 

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.

Wyndham is a hospitality company engaged in offering individual consumers and business customers a range of hospitality products and services.

 

 

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. The increase 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 momentum in North America. In the year-earlier quarter, Wyndham earned $75 million or 41 cents per share on an adjusted basis.

 

Total revenue rose 5% year over year to $963 million, 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 period while sales from Gross Vacation Ownership Interest soared 13%, owing to a 16% increase in volume per guest in the 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.

 

 

Wyndham raised its full-year 2010 outlook. The company expects adjusted earnings to range from $1.78–$1.88 per share, compared with its prior guidance of $1.56–$1.71 per share. For the third quarter of 2010, Wyndham expects adjusted earnings per share in the range of 60 cents to 64 cents.

 

For full-year 2010, management raised its revenue guidance range to $3.7 billion–$4.0 billion from its prior guidance range of $3.6 billion–$3.9 billion. Adjusted EBITDA is expected to remain in the range of $825 million–$860 million, compared with the prior guidance of $805 million–$840 million.

 

 

Following the second quarter earnings release, the Zacks Consensus Estimate for the company has been on the rise, with analysts remaining bullish on the stock. The strong second quarter results bolstered analysts’ confidence. The earnings estimate details are discussed below.

 

 

Analysts mostly remain bullish on Wyndham. Revision trends in the last 30 days drifted toward the positive side. For fiscal 2010, six of 7 analysts covering the stock raised their estimates. For fiscal 2011, five of 7 analysts increased their estimates. None of the analysts has reduced their estimates.

 

Analysts have increased their estimates based on strong second quarter results and enhanced fiscal year guidance by the company. Moreover, analysts expect the company to generate a robust free cash flow and deploy the cash to shareholders via dividends and share repurchases. Additionally, analysts foresee further declines in lower loan loss provisions in the timeshare business as the year unfolds. However, there has been no movement in estimates by analysts regarding their outlook on Wyndham over the last 7 days.