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Wyndham Upped to Outperform

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On Feb 22, we upgraded our recommendation on Wyndham Worldwide Corp. to Outperform from Neutral on the back of better-than-expected fourth-quarter 2012 results and increased guidance for 2013.

Why the Upgrade?

Wyndham continued its strong momentum in the fourth quarter of 2012 beating the Zacks Consensus Estimates for both earnings and revenues. In fact the hotelier outperformed the Zacks Consensus Estimates for both earnings and revenues in all four quarters of 2012.  

Buoyed by its strong operating performance, Wyndham raised its revenue, earnings and earnings before interest, taxes, depreciation and amortization (EBITDA) guidance for full-year 2013. Higher revenue per available room (RevPAR) and unit growth in its latest guidance also indicate the company’s inherent strength.

With the economy beginning to improve gradually, the company has started to generate room-rate gains in the domestic upscale and mid-scale segments without compromising on occupancy.

Wyndham derives a substantial chunk of revenues from its vacation ownership or timeshare business, which has solid long-term potential. Moreover, the company has a market leading position in vacation rental business.

Wyndham is currently on an acquisition spree. In order to further strengthen its existing vacation rental portfolio, Wyndham sealed three bolt-on acquisitions -- two beach resorts in the U.S. and one in United Kingdom in 2012. The company has acquired about 31 European rental brands since 2000.

We expect the company to benefit from its shift to a greater fee-for-service-based business, solid free cash flow generation, increased global travel demand and international expansion as well.

Other Stocks to Consider

Others players in the same industry, which look attractive at current levels include Sands China Ltd. carrying a Zacks Rank #1 (Strong Buy) and Choice Hotel International (CHH - Free Report) and Intercontinental Hotels Group plc (IHG - Free Report) carrying a Zacks Rank #2 (Buy).

In-Depth Zacks Research for the Tickers Above

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Intercontinental Hotels Group (IHG) - free report >>

Choice Hotels International, Inc. (CHH) - free report >>

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