The hospitality and tourism industry is only picking up, so it makes sense that some of the top names in the business have been strong performers in recent periods. For Wyndham Worldwide (TNL 0.39%), the company behind chains including Ramada, Days Inn, and of course its namesake, strong performance may be an understatement. In five years, the stock is up an incredible 720% on the back of smart capital allocation, a widening footprint, and of course, the aforementioned tailwinds in the industry as a whole. The best part is, even after its phenomenal rise, Wyndham remains a fairly valued business that may give investors the kind of returns that let one sleep well at night.
Earnings recap
On an adjusted basis, Wyndham's third-quarter earnings per share rose by an impressive 25% to $1.41 per share. Analysts had been expecting $0.05 less. Revenue grew less, but still achieved a comfortable 13% gain over the prior year's quarter with $1.4 billion.
Free cash flow is looking great, with $705 million -- representing a 3% gain over 2012 through the first nine months of this year.
Broken down by segment, the company's lodging unit saw a 19% increase in sales, while Exchange & Rentals grew by 12%. Part of that growth came from acquisitions of rental units. Vacation ownership (timeshare) grew 11% -- again buoyed by an acquisition. Wyndham purchased the Shell Vacation Club in September 2012 for $255 million. The purchase bumped up the company's properties by 19 resorts from Hawaii to Canada. Adjusted EBITDA for the Vacation ownership division grew by 14%.
Looking ahead, the company expects full year 2013 adjusted EPS of $3.78 to $3.80 -- above prior guidance. For 2014, the company is targeting $4.12 to $4.22 in EPS, and revenues as high as $5.35 billion.
The market loved the report, and sent the stock into its 52-week highs. The question now for investors is whether the stock can continue its multiyear run into the stratosphere.
Roomy
It isn't just the hotels that have room to spare; the stock does too. At less than 16 times forward earnings, Wyndham is far less expensive than, say, Marriott International. Marriott has a much larger business with incredible overseas opportunities and, similar to Wyndham, has a management team with a knack for smart capital allocation. Still, at 19 times forward earnings, the stock leaves less headroom than Wyndham, which should experience similar growth.
Another compelling point for Wyndham is its timeshare business. Though the aggressive sales tactics may seem seedy and undesirable to some, the business itself is very attractive. It's a capital-light business that has the potential to drive cash flows through the roof. For comparison, take a look at the Marriott spinoff, Marriott Vacations Worldwide, which also trades around the 19 times mark.
All in all, Wyndham appears to have the rare trifecta of attractive growth, conservative management, and appealing valuation. Investors interested in the space should take a close look.
