Wyndham Worldwide Offers Something for Everyone

It's a growing business priced at a comfortable valuation and kicks in a respectable dividend to boot. What's there not to like?

May 12, 2014 at 5:56PM

Wyndham Worldwide (NYSE:WYN) offers investors a combination of hospitality businesses that all have substantial industry tailwinds to keep things moving forward. A mix of traditional hotels and resorts along with a burgeoning vacation ownership segment has the company growing quietly on the top line, but with greater results on the ever-revered net income level. Investors have plenty to celebrate with the state of Wyndham's current operations, and with the added bonus of an appealing valuation, this may be one of the industry's top picks. Here's what investors need to know.

Recent focal points
In Wyndham's recently ended quarter, the big story was, rather surprisingly, domestic RevPAR (revenue per available room). RevPAR is one of the most important metrics to watch, as it is a measure of unit-level productivity (similar to same-store sales in the retail world). Wyndham posted an impressive 7.6% gain in domestic RevPAR.

Lodging is pegged as a growth industry for the next few years, as business and leisure travel should both meaningfully increase along with an ongoing global economic recovery. Wyndham has more than 7,500 locations, with roughly 1,000 more in development. The higher RevPAR led growth for Wyndham's latest quarter, followed by gains from property and room additions and franchise fees. International growth, as is common with many industries these days, is a huge source of optimism for Wyndham. Of the company's aforementioned development pipeline, 60% of the new locations are international. The company actually saw a near 5% dip in its international RevPAR, but that is entirely due to foreign exchange issues. Without a doubt, emerging markets in Asia, Africa, and the Middle East are the most exciting prospects for Wyndham and the industry at large.

One example of recent efforts include the company's quickly increasing presence in Turkey. In March, Wyndham announced it had broken into Ankara, adding on to locations in Istanbul and Izmir. Turkey is a crucial market given its geographic positioning and growing influence on the world economy. Other examples include sub-Saharan Africa and Southeast Asia.

Investors should also focus on the vacation ownership (timeshares) business, which continues to be a great source of growth. The segment posted 8% growth in the most recent quarter, and is particularly appealing given that tour flow and per guest spending rose 4.3% and 2.8%, respectively. For those unfamiliar, tour flow is how timeshare businesses source their sales. With gimmicky upfront offers (such as theme park tickets and free swag), timeshare salesmen hold audiences captive as they present the myriad reasons one should hold an interest in vacation ownership. While a salespersons' conversion rate is ultimately the most important metric of success, the sheer number of people coming into the tours is an important figure as well.

Valuetalk
At less than 15 times forward earnings, Wyndham offers investors a compelling deal on strong prospects, both industry and company specific. Take, for comparison, Marriott International, which trades at roughly 20 times forward expected earnings. Marriott is a pure play on lodging (it spun off its own vacation ownership segment) and is growing impressively, yet it doesn't have the diversified bonus of the other segments and is admittedly an expensive way into this industry. Wyndham's 12 times EV/EBITDA isn't particularly cheap, but that reflects the debt profile of an asset-heavy business (the company holds roughly $3 billion in debt).

All in all, Wyndham looks compelling with a strong shot at further stock growth considering its comfortable valuation. For income-seeking investors, the company adds a bonus with a 2% dividend yield. This is one of the rare stocks that offers something for the whole family -- a quickly growing business trading at a fair price, and generating quarterly income.

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