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Growth & Income

Wyndham Worldwide Corporation (WYN - Analyst Report) carried its strong momentum into the third quarter of 2011 and delivered a 7% positive earnings surprise on 14% revenue growth.

Management raised its guidance for the remainder of the year and also provided solid guidance for 2012. This prompted analysts to revise their estimates higher, sending the stock to a Zacks #1 Rank (Strong Buy) stock.

Wyndham also generated 24% more free cash flow than in the same quarter in 2010. It has been using that cash to return value to shareholders through stock buybacks and dividends. It currently yields a solid 1.8%

The valuation picture looks attractive too with shares trading well below the industry average and sporting a PEG ratio of just 0.8.

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 82% of its revenue comes from outside the lodging business. Third quarter 2011 revenue was divided as follows:

Lodging: 18%
Vacation Exchange & Rentals: 36%
Vacation Ownership: 46%

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 VOIs 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 $5.2 billion.

Third Quarter Results

Wyndham delivered better than expected third quarter results on October 26. Earnings per share came in at 94 cents, beating the Zacks Consensus Estimate of 88 cents. It was a stellar 38% increase over the same quarter in 2010.

Revenues rose 14% year-over-year to $1.21 billion, in-line with the Zacks Consensus Estimate. Wyndham's Vacation Exchange & Rentals division saw top-line growth of 32% over the same period while the company's hotel segment saw revenue growth of 9%, driven by a 6.3% jump in Revenue per Available Room (RevPAR).

Raised Guidance

Management raised its guidance for the remainder of 2011 following strong Q3 results. The company now expects to earn between $2.41 and $2.45 per share, up from previous guidance of $2.32-$2.40.

The company also gave preliminary guidance for 2012. Management expects 2012 EPS of $2.72-$2.82 on revenues of $4.425-$4.600 billion.

This prompted analysts to revise their estimates higher for both 2011 and 2012, sending the stock to a Zacks #1 Rank (Strong Buy) stock.

As you can see in Wyndham's Price & Consensus chart, consensus estimates have been steadily climbing higher as Wyndham has delivered an average EPS surprise of 10% over the last 4 quarters:

WYN: Wyndham Worldwide Corporation

Based on current consensus estimates, analysts expect strong growth to continue over the next couple of years. The 2011 Zacks Consensus Estimate is $2.46, just a hair above guidance, representing 23% growth over 2010 EPS.

The 2012 consensus estimate is currently $2.86, also above guidance, and corresponding with 16% EPS growth.

Returning Value to Shareholders

Wyndham generated $699 million in free cash flow for the first 9 months of 2011, an increase of 24% over the same period in 2010. The company has been using this to return value to shareholders through stock buybacks and dividends.

During the third quarter, the company spent $304 million buying back approximately 10.2 million shares of its stock. Wyndham also pays a dividend that yields 1.8%.

Reasonable Valuation

The valuation picture looks very reasonable for Wyndham with shares trading at just 11.9x 12-month forward earnings, a significant discount to the industry average of 20.0x.

Its PEG ratio is just 0.8 based on a 5-year projected EPS growth rate of 15.0%.

The Bottom Line

With strong earnings momentum, solid growth projections, shareholder-friendly management and attractive valuation, Wyndham offers investors a lot of upside potential.

Read the July 5 article here.

This Week's Growth & Income Zacks Rank Buy Stocks:

The Timken Company (TKR) delivered excellent third quarter results on October 27 with sales and EPS both beating the Zacks Consensus Estimates, and management raising its guidance for the remainder of the year. This prompted analysts to raise their estimates for both 2011 and 2012, sending the stock to a Zacks #2 Rank (Buy). Timken also pays a dividend that yields 1.9% and valuation is attractive with a PEG ratio of just 0.5. Read the full article.

B&G Foods, Inc. (BGS) delivered solid third quarter results, prompting analysts to revise their estimates higher for both 2011 and 2012. It is a Zacks #1 Rank (Strong Buy) stock. Based on consensus estimates, analysts project 20% EPS growth this year and 7% growth next year. In addition, the company pays a dividend that yields a juicy 4.4%. Read the full article.

Caterpillar Inc. (CAT) delivered record revenue and profit for the third quarter of 2011 and EPS crushed the Zacks Consensus Estimate by 21%. Management also provided a positive outlook going forward prompting analysts to revise their estimates higher for both 2011 and 2012. The company also pays a dividend that yields a solid 1.9%, and valuation looks attractive with shares sporting a PEG ratio of just 0.5. Read the full article.

Columbia Sportswear Company (COLM) delivered a 21% positive earnings surprise on October 25, prompting analysts to raise their estimates for both 2011 and 2012. Based on current consensus estimates, analysts are looking for 34% EPS growth this year and 15% growth next year. On top of this, the company pays a dividend that yields a solid 1.6%. Read the full article.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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