Wyndham Worldwide Corporation (NYSE:WYN) delivered some solid earnings on Wednesday. While WYN stock remains pricey for this investor, it’s macro moves are going to be good things overall for the company.
Fourth-quarter revenues from continuing operations were up 4% to $1.2 billion. Net income ticked up a bit to $152 million, or $1.49 per diluted share, from $147 million, or $1.36 per diluted share. We obviously hope to see robust operational cash flow from a hotel company because of the intensive level of capital expenditures, and WYN stock delivered $320 million of it — up from $305 million.
Mind you, these results were impacted by the hurricanes, hurting revenues, net income and EBITDA by $15 million, $10 million, and $16 million, respectively.
When we factor those numbers back in — net income would have come in at $162 million, or a 10% increase — I see that WYN stock is giving me the numbers I want to see.
The entire year saw a 3% revenue increase to $5.1 billion. However, WYN stock net income was basically flat at $570 million. However, if we add back in the $10 million impact in Q4 from hurricanes, and another $17 million from Q3 hurricanes, then net income would have been up about 5% to $597 million. That’s acceptable.
The operational cash flow of $952 million also impresses. That is significantly down from 2016, but it’s due to asset impairments and separation costs.
Pros and Cons on WYN Stock
So, where is WYN stock strong and where is it weak? On the hotel side, I’m loving the RevPAR growth of 4.5%. That indicates a very robust environment, and drove a 5% revenue increase for Q4.
Wyndham stock management has decided to shut down its European vacation rentals business, and word has it that AirBnB may pay up to a billion dollars for it.
My favorite segment, vacation ownership (timeshares), saw a 4% revenue increase to $734 million, backed by a 7% increase in gross sales. I love VOI’s because a company borrows money at low rates to build a resort, then sells each unit 52 times over and often is able to have borrowers finance them at much higher rates as well.
Now, Wyndham has two interesting things happening. First, it bought out La Quinta Holdings, Inc. (NYSE:LQ) for almost $2 billion in cash, adding more than 900 hotels to the hotel group. After this acquisition is done, WYN is going to spin-off its hotel group. This is a good idea because it’s a bit of a drag on the entire Wyndham stock operation. The problem is that its franchises are pretty lousy operators, only generating occupancy rates in the 60-64% range, while peers hit 75%. It may also allow WYN management to really focus on what Wyndham’s brand identity is and come up with a better loyalty program.
Wyndham stock also raised its quarterly dividend from 58 cents to 66 cents, so that should also attract more interest to the hotel spinoff.
I think WYN stock is expensive, but I would like to see how things play out after the spinoff and see if we can get a market correction big enough to take the price down and make it more interesting.
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 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.