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Growth & Income

Estimates jumped higher for Wyndham Worldwide Corporation (WYN - Analyst Report) after the company delivered better than expected results for the first quarter of 2011. Management also raised its EPS guidance for the full year off the strong quarter.

Based on consensus estimates, analysts project double-digit EPS for the company over the next two years. On top of this growth, Wyndham pays a dividend that yields 1.8%.

Much More than a Hotel Company

Wyndham Worldwide Corporation is a hospitality company operating in three segments: Lodging, Vacation Exchange & Rentals, and Vacation Ownership.

Although it may be best known for its hotel brands like Days Inn, Super 8, Ramada, Howard Johnson and Wyndham Hotels & Resorts, approximately 84% of its revenue comes from outside the lodging business. First quarter 2011 revenue were divided as follows:

Lodging: 16%
Vacation Exchange & Rentals: 37%
Vacation Ownership: 47%

The Vacation Exchange & Rentals business provides products and services to owners of vacation ownership interests (VOIs), while the Vacation Ownership segment develops, markets, and sells vacation ownership interests to individual consumers, provides consumer financing in connection with the sale of VOIs, and offers property management services at resorts.

Wyndham Worldwide is headquartered in Parsippany, New Jersey and has a market cap of $6.0 billion.

First Quarter Results

First quarter earnings per share came in at 44 cents, beating the Zacks Consensus Estimate by 5 cents. It was a 29% increase over the same quarter in 2010.

Revenue for the first quarter rose 7.4% year-over-year to $952.0 million as each business unit saw growth. The Vacation Exchange & Rentals segment experienced revenue growth of 19% as the vacation rental market was strong. The Vacation Ownership segment inched up 1%.

The Lodging group saw a 3% increase in revenue as revenue per available room increased from $25.81 to $27.71.

Meanwhile, adjusted operating income rose 15% as the company leveraged its fixed expenses. The adjusted operating margin improved from 15.3% to 16.5%.

Raised Guidance

Following solid Q1 results, management raised its guidance for the full year. The company now expects to earn between $2.15-$2.25 per share, up from previous guidance of $2.05-$2.15. It expects annual revenue of approximately $4.0-$4.2 billion.

Analysts revised their estimates significantly higher too, sending the stock to a Zacks #2 Rank (Buy). Consensus estimates have been steadily moving higher over the last several months as company continues to outperform expectations:

TUP: Tupperware Brands Corporation

The 2011 Zacks Consensus Estimate is $2.26, representing 13% growth over 2010 EPS. The 2012 consensus estimate is currently $2.61, corresponding with 16% EPS growth.

Fundamentals

Wyndham has been generating solid free cash flow and returning that cash to shareholders through stock buybacks and dividend hikes. In the first quarter, the company repurchased approximately 8.2 million shares of stock for approximately $255 million. It also recently announced that its Board of Directors approved a $500 million increase to its share repurchase program.

Wyndham also pays a dividend that yields 1.8%. Earlier in the year, the company raised its quarterly dividend by 25% to 15 cents per share.

The valuation picture looks reasonable for WYN with shares trading at 15.5x 2011 EPS, a significant discount to the industry average of 21.0x.

Its price to sales ratio is 1.5, a premium to the industry average of 1.1, but more than justified given the company's strong profit margins.

The Bottom Line

Wyndham Worldwide continues to benefit from a recovering economy as revenue has been growing and margins have been expanding. Estimates have been rising too, and analysts expect strong EPS growth from the company over the next two years. Along with a declining share count, rising dividends, and reasonable valuation, Wyndham looks like very attractive.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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