Select Service Model And FeePAR Expansion Will Shape Future Success

Key Takeaways

• Wyndham's select-service model and expansion into high-margin markets position it for resilience and growth during economic downturns.
  
• Strategic developments and ancillary revenue streams, like co-branded credit cards, enhance revenue, while technology investments optimize margins.
  
• Macroeconomic uncertainties and pricing pressures in key regions, along with higher interest costs, could negatively impact Wyndham's revenue, margins, and growth outlook.

Catalysts

Operates as a hotel franchisor in the United States and internationally.

• Wyndham's select-service model, anchored in essential blue-collar travel and offering cost advantages, positions it to outperform during economic downturns, supporting resilient revenue and net margins.
  
• Expansion in high FeePAR markets and a continued pipeline growth internationally reflect Wyndham's strategic shift toward higher-margin opportunities, potentially increasing earnings.
  
• Momentum in the development front is showcased by a record number of room additions and strategic deals, such as in Germany, which will contribute positively to revenue growth.
  
• Ancillary revenue streams like the renewed co-branded credit card agreements are gaining traction, enhancing overall revenue and earnings potential.
  
• Investment in innovative technology solutions and franchisee support services could drive cost efficiencies, thereby positively impacting net margins.

Wyndham Hotels & Resorts Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wyndham Hotels & Resorts's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.6% today to 25.8% in 3 years time.
• Analysts expect earnings to reach $451.7 million (and earnings per share of $6.27) by about May 2028, up from $334.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.7x on those 2028 earnings, up from 19.2x today. This future PE is lower than the current PE for the US Hospitality industry at 21.9x.
• Analysts expect the number of shares outstanding to decline by 4.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.38%, as per the Simply Wall St company report.

Wyndham Hotels & Resorts Future Earnings Per Share Growth

Risks

• China's RevPAR declined 8% year-over-year, indicating pricing pressure and potential challenges in revenue generation in this region.
  
• The U.S. RevPAR finished about 3 points below expectations and showed a decline in demand with consequences for revenue growth.
  
• Given the macroeconomic uncertainty, there is a cautious outlook for industry-wide RevPAR performance, which could affect revenue and adjusted EBITDA negatively.
  
• Higher interest expenses compared to the previous year could increase financial costs and negatively impact net margins and earnings.
  
• Broader market volatility and the meaningful share price decline during the quarter could affect investor sentiment, potentially impacting the company's ability to finance and sustain its growth strategy.

Valuation

• The analysts have a consensus price target of $104.258 for Wyndham Hotels & Resorts based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $115.0, and the most bearish reporting a price target of just $94.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $451.7 million, and it would be trading on a PE ratio of 19.7x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $83.44, the analyst price target of $104.26 is 20.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.