Wyndham's Winning Ways

7/2/2012


  Recent Price
$51
  Dividend
$0.92
  Yield
1.8%
  P/E Ratio
19
  Shares (millions)
149
  Long-Term Debt as % of Capital
65%
  52-Week Price Range
$52.99 - $24.76

Back in 2008, Wyndham Worldwide ($51; WYN) began outfitting its staff in polyester uniforms made from recycled plastic bottles. That idea — taking an item and making it new for someone else — is vital to Wyndham's business. The company operates timeshare exchanges and rentals (30% of estimated 2012 operating income), allowing vacationers to rent cottages, condos, and yachts that belong to independent owners.

Wyndham also owns 15 hotel brands (24% of estimated 2012 operating income), ranging from economy motels to upscale resorts. A third business unit, which sells vacation ownership (46% of estimated income), rounds out the company's business. Wyndham says it is the world's largest hotel franchiser, as well as the top timeshare developer and renter. Wyndham is a Focus List Buy and a Long-Term Buy.

Wide World of Wyndham

Wyndham grew free cash flow 67% to $662 million in the 12 months ended March, and management says it can sustain annual free cash of $600 million to $700 million. With limited need for capital investment, Wyndham shares much of that cash with stockholders. The dividend has grown at an annualized rate of 79% over the last three years, while buybacks have cleaved 20% off the share count over the past eight quarters. A recent Federal Trade Commission suit alleging a failure to safeguard customer information is a reputational black eye but is not expected to lead to material penalties.

The U.S. lodging industry continues to recover from the recession. Both pricing and occupancy rates for U.S. hotel rooms rose 4% in 2011 and continue to climb this year. Wyndham considers the U.S. vacation-rental business both underpenetrated (just 10% of adults have rented over the last 10 years) and highly fragmented (about 5,000 professional managers average roughly 110 units apiece). The company sees its rental business picking up over the next five years.

Wyndham's exposure to Europe (about 15% of operating income) adds some risk to the shares. The vacation-rental unit is especially big in Europe, though Wyndham continues to see a stable rental environment there. Unlike many of its rivals, Wyndham's vacation-rental segment continued to grow during the last recession, in part because it operates mostly in financially secure northern countries such as the United Kingdom, Denmark, and Germany.

Conclusion

Taking growth prospects into account, Wyndham's valuation looks reasonable. The consensus projects profit growth of 26% to $3.15 per share this year. Wyndham trades at 16 times estimated 2012 earnings, versus 21 for its peer group. In the next five years, Wyndham sees earnings per share advancing 17% to 21% a year through a mixture of organic growth, buybacks, and acquisitions.

For the June quarter, rising analyst estimates call for per-share earnings to jump 31% to $0.84. Wyndham has topped consensus profit estimates by at least 5% in 10 straight quarters. An annual report for Wyndham Worldwide Corp. is available at 22 Sylvan Way, Parsippany, NJ 07054; (973) 753-6000; www.wyndhamworldwide.com.

WYNDHAM WORLDWIDE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '12
0.60
vs.
0.44
+ 9%
46.99
-
36.26
19 - 15
Dec '11
0.47
vs.
0.46
+ 7%
38.35
-
26.18
15 - 11
Sep '11
0.94
vs.
0.68
+ 14%
36.00
-
24.76
16 - 11
Jun '11
0.64
vs.
0.51
+ 13%
35.50
-
30.39
17 - 15
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
4.25
2.49
0.60
38.35
-
24.76
15 - 10
2010
3.85
2.00
0.48
31.41
-
19.44
16 - 10
2009
3.75
1.80
0.16
21.45
-
2.77
12 - 2
2008
4.28
2.18
0.16
25.00
-
2.55
11 - 1
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
87
91
35
83
53
85
94

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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