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Wyndham Poised on Spin-Off & Other Initiatives Despite Risks

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On Sep 26, we issued an updated research report on hospitality company, Wyndham Worldwide Corporation (WYN - Free Report) .

Spin-Off of Hotel Group is a Positive

On Aug 3, 2017, Wyndham announced its plan to spin off the company's hotel business – Wyndham Hotel Group – resulting in two separate publicly traded companies. The transaction is expected to be completed in the first half of 2018.

Notably, the company believes that the spin-off of its Hotel Group business and the combination of Vacation Ownership segment with RCI is the best structure to unlock shareholder value and enable strong long-term growth across the businesses.

In fact, this transaction is anticipated to increase the fit, focus, and strategic flexibility of the post spin-off companies, facilitate prospective capital raising and position them to better respond to developments in their respective markets.

Prospects for its Other Two Segments

Wyndham derives a substantial chunk of revenues from its vacation ownership business – Wyndham Vacation Ownership (WVO) – which is one of the fastest evolving and profitable sectors in the hospitality industry.

Presently, increasing the number of new owners is Wyndham’s most important strategic initiative at WVO. Along these lines the company is making great progress as WVO brought 10% more owners into the system in 2016 and is looking to increase new owner base by 23% in 2017.

After the stipulated spin-off, WVO will become the world's largest publicly traded timeshare business with a portfolio of over 220 resorts, a strong sales and marketing platform and over $2 billion in gross timeshare sales. The company will also include RCI – the world's largest timeshare exchange company – along with its U.S. Vacation Rental brands.

Meanwhile, Wyndham’s Destination Network business continues to see strong growth from its Vacation Rental brands with healthy increases in organic unit count, occupancy and price. In fact, the company’s performance has been particularly strong in Europe, where the company has been investing heavily in recruiting, services and improving guest experience to drive long-term growth.

Wyndham’s strong loyalty program – Wyndham Rewards – offers great prospects as well. Currently, there are about 52 million members in Wyndham Rewards, an increase of 10% over prior year. Markedly, Wyndham Rewards members stay 12% longer than nonmembers and generate 64% more in revenue to Wyndham’s franchisees.

The company has also formed an alliance with Caesars Entertainment, which will unite two of the world’s leading hotel and casino loyalty programs.

Thus, going forward, the company’s diversified product portfolio, strong loyalty program and effective marketing efforts are expected to sustain its growth momentum.

Concerns

Bringing in new owners as part of WVO expansion strategy is proving to be costly and taking more effort as reflected in the company’s decreasing Volume per Guest. Owner tour flow is also getting dampened by the company’s focus on new owners as well as more targeted marketing efforts. Thus, as Wyndham starts to focus more on increasing number of owners, short-term effects on revenues and EBITDA may not be favorable.

Meanwhile, a sluggish economy in Brazil, uncertainty in Africa, and macroeconomic headwinds in Venezuela and soft demand from oil-producing regions such as Texas may keep revenues under pressure. Wyndham also has a significant number of vacation rental properties in Europe, where the economic/political conditions are expected to be challenging post Brexit.

Additionally, major currency headwinds are affecting most of the hoteliers including Hyatt Hotels Corporation (H - Free Report) , Hilton Worldwide Holdings (HLT - Free Report) , Marriott International, Inc. (MAR - Free Report) , among others. This, in turn, might restrict Wyndham’s revenue growth.

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