What Can We Expect from Wyndham in 4Q16?
By Ally Schmidt | Feb 10, 2017 12:29 am EST
Analyst estimates for 4Q16
Wyndham (WYN) is expected to report its 4Q16 earnings on February 15, 2017, before the market opens for the day. Analysts are estimating 4Q16 revenues to rise 1.4% to $1.3 billion and earnings per share to rise 32% to $1.30.
Before we discuss the key indicators that drive Wyndham’s stock prices, we’ll look at how the stock has performed with respect to its peers.
Wyndham stock performance
Wyndham’s stock price has risen by over 17.6% in 4Q16. For the full year 2016, the stock has risen 4.2%. However, the company has underperformed its peers. Hilton (HLT) saw the largest gain in its stock price of 24.4% followed by Hyatt (H), which gained 14.7%, and Marriott (MAR), which gained 20.2%. The broader market, tracked by the SPDR S&P 500 ETF (SPY), rose 3.6% in the same period.
However, as of February 8, 2017, Wyndham stock has outperformed peers with gains of 5.4% YTD. Marriott stock rose 3.8%, Hyatt rose 0.96%, and Hilton rose 0.34% in the same period. SPY has gained 2.6%.
This pre-earnings series will help you know what to expect from the 4Q16 earnings release on February 15, 2017. We’ll also cover analysts’ estimates for Wyndham’s 2017 earnings. We’ll also discuss the indicators that you need to look for to gauge growth prospects and risks related to Wyndham.
Investors can gain exposure to Wyndham Worldwide by investing in the Vanguard Mid-Cap Growth ETF (VOT), which invests ~0.56% of its portfolio in the stock.
Wyndham’s (WYN) revenue growth has been on a declining trend since the beginning of 2013. After clocking a growth of 10.5% in 2013, revenue growth fell to 5.4% in 2014 and further to 4.8% in 2015.
For the full-year 2016, revenue is expected to fall even further to 1.4% to $5.6 billion. However, revenue growth is expected to improve in 2017. Revenues are expected to rise 2.1% in 1Q17 to $1.3 billion, 4.1% in 2Q17 to $1.5 billion, 4.2% in 3Q17 to $1.6 billion, and 4.1% in 4Q17 to $1.4 billion. This will lead to full-year 2017 revenue growth of 3.4% to $5.8 billion.
Timeshare to grow
The vacation ownership or timeshare segment accounted for almost 47% of Wyndham’s revenue in 3Q16. The segment is expected to be the main driver for growth going forward. The company will also be launching new timeshare exchange products in 2017, allowing Wyndham to expand its services to new members. The company is also putting in incremental efforts to increase new and younger owners in the segment, which will help improve future revenues.
Research by Brand Keys has found that Wyndham’s Microtel brand has the largest number of loyal customers in the economy hotel class. It has also been the top-rated economy hotel for 13 of the last 14 years in JD Power’s annual survey, which means repeat clientele and assured future revenues for Wyndham.
Growth for hotels, especially in the timeshare segment, is driven by factors such as disposable income available to customers, a stable US economy, and growing household income. The world’s growing middle-class population will boost travel demand, which means higher hotel bookings too.
Investors can gain exposure to the hotel sector by investing in the Consumer Discretionary Select Sector SPDR Fund (XLY), which invests approximately 1.2% in Marriott International (MAR) and 0.36% in Wyndham Worldwide (WYN). Currently, it has no holding in Hilton (HLT) or Hyatt (H).
Adjusted EBITDA margins
In 3Q16, Wyndham’s (WYN) adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin rose slightly to 26.7% from 26.2% in 3Q15. This led to an EBITDA of $420 million for the quarter. The company also saw its margins grow on a YoY basis in the first two quarters of 2016.
Wall Street analysts expect Wyndham’s 4Q16 adjusted EBITDA margins to be at 23.9% compared to 20.4% in 4Q15. 4Q15 margins were impacted by one-time management termination fees and impairment costs. This will lead to the full-year 2016 EBITDA growth of 7% to $1,371 million with an EBITDA margin of 24.4%.
Analysts are also expecting the margins to increase further in all four quarters of 2017. Growing revenue along with rising margins are expected to expand EBITDA further in 2017. For the full year 2017, EBITDA margins are expected to improve slightly to 24.5%, leading to an EBITDA growth of 4% to $1,420 million.
Wyndham management hasn’t provided profitability guidance currently due to the ongoing budget allocations. However, it has set a long-term EBITDA growth target of 6% to 8%. For the past five quarters, Wyndham’s EBITDA growth has been higher than that.
However, according to the management, the hospitality industry in general is going through a cyclical downturn and thus Wyndham will find it difficult to show EBITDA growth driven by revenue. EBITDA growth for Wyndham in the medium term is more likely to be Opex-driven (productivity gains and cost management), which is not a sustainable strategy.
Investors can gain exposure to the hotel sector by investing in the First Trust Consumer Discretionary AlphaDEX Fund (FXD), which invests approximately 14.8% in the hotel, restaurants, and leisure sectors, including 0.58% in Wyndham, 0.87% in Hyatt (H), 0.9% in Hilton Worldwide Holdings (HLT), and 1.2% in Marriott International (MAR).