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Here's Why It's Prudent to Add Wyndham to Your Portfolio Now

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Wyndham Worldwide Corporation is currently one of the best-performing stocks in the hotel space. With a Zacks Rank #2 (Buy) and decent share price appreciation the stock is a lucrative investment choice at the moment. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Shares of Wyndham have outperformed its industry in the past year. The stock has rallied 35.7% as compared with the industry’s growth of 31.5%.

Moreover, an upward revision in earnings estimates for 2018 reflects analysts’ unwavering confidence in the company’s future earnings. Over the last 60 days, the consensus estimate for 2018 earnings rose 3.5%. Further, the company delivered positive earnings surprises in the trailing four quarters, recording an average beat of 4.14%.


La Quinta Acquisition to Enhance Margins & Earnings

Traditionally, gross margin for hospitality companies are always comparatively higher as majority of its expenses come from cost of operations. However, the sector’s profit margin narrows, once these expenses from operations are taken into account. Consequently, net profit margin or net margin is considered the accurate metric for gauging the profits of hospitality companies. Wyndham’s trailing 12-month net margin is 15.4% higher than the industry’s 8.8%.

Moreover, with the recent merger agreement with La Quinta Holdings, Wyndham’s expects $55 million to $70 million in annual cost savings by the end of 2019. This can be attributed to La Quinta’s asset-light, fee-for-service business structure which will further improve Wyndham’s margins and facilitate earnings growth.

Arguably, earnings growth is of utmost importance for determining a stock’s potential, as surging profit levels often indicate solid prospects (and stock price gains). In 2018, Wyndham’s earnings per share are expected to grow 24.7%.

Robust Loyalty Program to Increase Occupancy

In order to survive the tough competition from hotel giants like Marriott (MAR - Free Report) , Hyatt (H - Free Report) and Hilton (HLT - Free Report) , Wyndham is constantly devising newer ways to increase its share of market by raising occupancy. In order to enhance guest experience and drive occupancy, the company offers one of the most generous reward program payouts in the industry. Currently, there are about 55 million members in Wyndham Rewards, an increase of 5.8% over prior year. In 2017, the company made Wyndham Rewards points redemption available to nearly 100 Wyndham Vacation Ownership properties, to generate new marketing opportunities between the two businesses.

Solid Return to Shareholders

Wyndham is consistently rewarding shareholders through repurchases and dividends. Ever since the initiation of its share repurchase program in 2007, the company has expanded the same by eight times and bought back shares worth $6 billion. Meanwhile, the company’s ongoing dividend policy is likely to grow its dividend at least at the rate of its earnings growth. Currently, Wyndham has a payout ratio of 42%. Further, it has a dividend yield of 2.4%, higher than the industry’s 0.1%. We appreciate the company’s efforts to consistently enhance shareholder returns.

Moreover, the company delivered an ROE of 92.39% in the trailing 12 months compared with its industry’s 6.02%. This supports its immense growth potential and indicates that Wyndham reinvests more efficiently compared with peers.

Valuation Looks Strong

Looking at Wyndham’s Price to Earnings Ratio (P/E) for the current fiscal year, investors might be willing to pay more as the company is undervalued compared with peers. The company’s P/E ratio for the trailing 12 months stands at 18.5 while that of the industry’s is 31x.

Moreover, per our VGM Score, which identifies the most attractive value, growth and momentum characteristics, Wyndham has a Value Score of B which indicates that the stock is most likely to outperform.

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