Record 69,000 Room Additions Will Increase Brand Presence In Key Markets

Key Takeaways

• Strong room additions and robust growth in international markets will enhance brand presence and drive future revenue and earnings growth.
  
• Expansion in extended stay and co-branded card programs are expected to boost earnings and enhance market share.
  
• International economic volatility and deflationary pressures, especially in China and hyperinflationary markets, could challenge revenue and earnings stability and growth.

Catalysts

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

• The company reported a record 69,000 room additions in the year with particularly strong growth in new construction projects and conversions in key markets, which is expected to increase revenue and enhance brand presence.
  
• Expansion in the fast-growing extended stay market, expected to grow from $21 billion in 2024 to $27 billion by 2028, is set to boost future earnings and net margins due to higher occupancy and market share gains.
  
• International operations show robust growth with a 20% pipeline increase in EMEA and a 15% increase in Latin America at higher FeePAR rates, driving future revenue and earnings growth.
  
• A strong infrastructure project pipeline, with 80% of projects located near Wyndham hotels, provides a sustained opportunity for increased RevPAR growth and strengthens future revenue projections.
  
• Renewed co-branded credit card and new co-branded debit card programs are expected to accelerate ancillary revenue growth to low teens percentages in 2025, significantly enhancing earnings through increased member engagement and transaction volume.

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 20.6% today to 26.2% in 3 years time.
• Analysts expect earnings to reach $452.3 million (and earnings per share of $6.2) by about April 2028, up from $289.0 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 21.4x on those 2028 earnings, down from 21.7x today. This future PE is lower than the current PE for the US Hospitality industry at 22.4x.
• Analysts expect the number of shares outstanding to decline by 3.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.56%, as per the Simply Wall St company report.

Wyndham Hotels & Resorts Future Earnings Per Share Growth

Risks

• Continued deflationary pressures in China could negatively impact RevPAR, ultimately affecting revenue and earnings.
  
• The potential headwinds from the hurricane impact removal in the RevPAR guidance could result in lower-than-expected revenue growth.
  
• Higher interest expenses are partially offsetting EPS growth, which could lead to increased financial costs impacting net margins.
  
• Deflation in China, which resulted in a RevPAR decline of 11%, may continue putting pressure on earnings from that region.
  
• Exposure to economic volatility and deflationary pressures internationally, particularly in hyperinflationary markets like Argentina, could impact revenue and earnings stability.

Valuation

• The analysts have a consensus price target of $109.541 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 $125.0, 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 $1.7 billion, earnings will come to $452.3 million, and it would be trading on a PE ratio of 21.4x, assuming you use a discount rate of 8.6%.
• Given the current share price of $80.83, the analyst price target of $109.54 is 26.2% 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.