Critical Global Expansion And Innovation Propel Future Revenue Growth In Hospitality

Key Takeaways

• Global expansion and new contracts in promising markets are set to drive substantial future revenue growth.
  
• Investment in technology and automation may improve net margins and boost overall profitability.
  
• Heavy reliance on the domestic market and new construction makes the company vulnerable to economic downturns and geopolitical instability affecting growth and margins.

Catalysts

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

• Wyndham's strategic expansion with over 248,000 rooms globally and signing of new ECHO Suites contracts in promising markets could drive substantial future revenue growth.
  
• The increase in ancillary fee streams, driven by innovations like the Wyndham Rewards Earner Business Card and Wyndham Connect, is expected to boost revenue significantly.
  
• The company’s focus on international expansion, particularly in high-growth markets like India and China, is likely to contribute to sustained revenue growth and higher earnings.
  
• The investment in technology and automation to enhance guest experiences and operational efficiency may lead to improvements in net margins and overall profitability.
  
• Strategic share repurchase activity aligned with strong free cash flow generation could enhance EPS growth through reduction in outstanding shares.

Wyndham Hotels & Resorts Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wyndham Hotels & Resorts's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.3% today to 23.4% in 3 years time.
• Analysts expect earnings to reach $397.3 million (and earnings per share of $5.89) by about November 2027, up from $253.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.8x on those 2027 earnings, down from 29.1x today. This future PE is lower than the current PE for the US Hospitality industry at 24.4x.
• Analysts expect the number of shares outstanding to decline by 4.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.12%, as per the Simply Wall St company report.

Wyndham Hotels & Resorts Future Earnings Per Share Growth

Risks

• The company's strong reliance on the domestic market, particularly with the economy segment, has shown some vulnerability as domestic RevPAR declined by 80 basis points this quarter compared to the prior year. This could impact net margins if domestic growth does not pick up as expected.
  
• Despite significant growth in international markets, geopolitical instability or regional economic downturns could pose risks to sustaining this growth, potentially affecting international revenue streams.
  
• The company’s strategy relies heavily on new construction and conversions, which can be sensitive to interest rate hikes and economic downturns, potentially impacting future revenues and net margins if capital becomes more expensive or less available.
  
• Their expansion heavily involves markets like China and India, where regulatory, competitive, and economic risks could disrupt expected net room growth and revenue contributions.
  
• Although the company has a robust pipeline and development plans, the potential for economic recession or slower-than-anticipated recovery could reduce travel demand, negatively impacting occupancy rates and earnings.

Valuation

• The analysts have a consensus price target of $97.8 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 $80.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.7 billion, earnings will come to $397.3 million, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 8.1%.
• Given the current share price of $94.53, the analyst's price target of $97.8 is 3.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.