Wyndham Worldwide Corporation

And management raised its earnings guidance for the remainder of the year, prompting analysts to revise their estimates higher. This sent the stock to a Zacks #2 Rank (Buy).

In addition, Wyndham has been buying back its stock and recently hiked its dividend by 53%. It yields a solid 1.8%.

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. First quarter 2012 revenue was divided as follows:

Lodging: 18%
Vacation Exchange & Rentals: 34%
Vacation Ownership: 48%

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 $7.4 billion.

First Quarter Results

Wyndham delivered another impressive quarter on April 25. Adjusted EPS came in at 60 cents, well ahead of the Zacks Consensus Estimate of 55 cents. It was an increase of 36% over the same quarter last year.

Revenue rose 9% year-over-year to $1.036 billion, ahead of the consensus of $1.008 billion. This was driven by an 11% increase in the Vacation Ownership segment and a 24% jump in Lodging.

Meanwhile, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased 8% over the same period last year.

Outlook

Following strong Q1 results, management raised its earnings guidance for 2012 to a range of $3.00-$3.15, up from previous guidance of $2.85-$3.00.

This prompted analysts to revise their estimates higher for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy).

The 2012 Zacks Consensus Estimate is now $3.15, at the upper end of guidance, and representing 26% growth over last year. The 2013 consensus is currently $3.52, corresponding with 12% growth.

Returning Value to Shareholders

Wyndham generated $193 million in free cash flow during the first quarter, an increase of 4% over the same period in 2011. The company has been using its strong cash flow to return value to shareholders through stock buybacks and dividends.

During the first quarter alone, the company spent $150 million buying back approximately 3.6 million shares of its stock. Wyndham also recently boosted its quarterly dividend by a whopping 53%. It currently yields a solid 1.8%.

Valuation

Shares are up almost 50% since I last wrote about Wyndham back on November 4. But the valuation still looks reasonable, providing plenty more upside potential.

Shares trade at 16x 12-month forward earnings, a premium to the industry median of 14x. But this seems justified given the company's above-average earnings growth.

It sports a PEG ratio of 1.06 based on a long-term EPS growth rate of 15%.

The Bottom Line

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

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.