We are reverting to a Neutral recommendation on the hotel company Wyndham Worldwide Corp. from Outperform, given increasing pressure on international revenue per available room rate (RevPAR) and lingering uncertainty in some geographic regions.
Why Back to Neutral?
Decelerating growth in a number of major emerging economies, especially in Brazil, China and India, is a concern. Apart from slower GDP growth in these nations, RevPAR of the company might slow down on account of higher supply growth in a few emerging markets. With expansion activities on the rise, Wyndham is focusing on lower RevPAR regions and brands, which might limit the company’s international RevPAR growth. Also, the strength of the dollar at the current level might add to the woes.
The soft economic condition in Europe continues to be a weak point for Wyndham. The company has approximately 100,000 vacation rental properties with more than 85,000 properties located in Europe. Given its significant presence in Europe, the current sluggishness in the Eurozone may limit the growth of its vacation rental businesses. Although, the European nations have started witnessing improvements, they are yet to reach pre-crisis levels.
Management expects budget sequestration in the U.S. to hamper the company’s business momentum in North America to some extent as well. Reduced government spending on travel will likely hurt the company’s financials in 2013. The implementation of austerity measures will result in higher taxes on consumers, which in turn might result into low group and transient bookings.
However, despite these discouraging facts, numerous positive attributes prevent us from being too pessimistic on the stock. Strong second-quarter 2013 results, increased earnings guidance, a strong developmental pipeline, significant international exposure and transition to a greater fee-for-service-based business should prove beneficial over the long term. Wyndham currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other players in the same industry, which look attractive at current levels, include China Lodging Group, Limited (HTHT - Free Report) , Marriott Vacations Worldwide Corp. (VAC - Free Report) and Hyatt Hotels Corp. (H - Free Report) all carrying a Zacks Rank #2 (Buy).