Wyndham Worldwide Corporation Is Making the Right Moves

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WYN - Wyndham Worldwide Corporation Is Making the Right Moves

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Wyndham Worldwide Corporation (NYSE:WYN) announced two explosive deals that sent its shares 5% higher last Thursday.

First, it is going to purchase La Quinta Holdings Inc (NYSE:LQ) and its 900 hotels to add to its own 8,000-hotel portfolio. Then later this year, WYN stock will split up as it spins off its hotel group. WYN doesn’t just own hotels but also has timeshares and vacation rental properties.

Let’s take a look at what Wyndham will look like going forward and see if it is worth purchasing or selling WYN stock now.

WYN is built on three divisions: the Hotel Group, Destination Network division, and Vacation Ownership division. The Hotel Group is mostly built on the franchise model and focuses on hotels in the upscale, upper-mid-scale, mid-scale, economy, and extended-stay segments.

WYN also handles property management services for some full-service and select limited-service hotels, with about 800,000 rooms across the entire division. Hotel brands include Wyndham Hotels and Resorts, Ramada, Days Inn, Super 8, Howard Johnson, Wingate by Wyndham, Microtel Inns & Suites by Wyndham, TRYP by Wyndham and Dolce Hotels and Resorts.

WYN is supported by about $1.3 billion of revenue in this division, although it isn’t experiencing much growth, if any. It did contribute $391 million of cash flow, however. With the LQ purchase, it will add about a billion dollars more in revenue and about $184 million in operating income.

The Destination Network segment provides vacation-exchange services (timeshares) and products to owners of intervals of vacation ownership interests (VOIs). It also manages and markets vacation rental properties primarily on behalf of independent owners. 2016 saw revenues of $1.57 billion with cash flow of $356 million.

The Vacation Ownership segment is the size of the other two divisions combined. It develops, markets and sells VOIs to individual consumers and provides consumer financing in connection with the sale of VOIs, as well as offers property management services at resorts. It generated $2.8 billion of revenue in 2016, resulting in $694 million of cash flow.

Net income for WYN in 2016 was $611 million. LQ isn’t a terribly profitable operation, either. However, the combination makes sense and solidifies Wyndham’s position in this particular area of hospitality. WYN is in the top market position for each market with respect to size.

Many other hotel chains have also spun off their hotel or timeshare divisions.

I think the hotel spinoff is a good idea. Wyndham needs to focus on this division because it needs to do two things. First, its franchises are pretty lousy operators, only generating occupancy rates in the 60-64% range, while peers manage 75%. Still, it isn’t entirely the franchises’ fault because Wyndham doesn’t really have a strong brand identity or message.

Wyndham is also hampered by a lackluster loyalty program. Given the rabid fanbase of Starwood’s program, of which I include myself, Wyndham needs to play catch-up.

Bottom Line on WYN Stock

I think WYN stock is fully priced at this point, as it has been rising in anticipation of the spinoff announcement, and now the LQ purchase has pushed it higher. I think the play is to wait for the spinoff and see how it is valued before committing capital. WYN stock also doesn’t pay much of a dividend, and there are other hotel stocks that pay much better dividends.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance, and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


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