Topic: Spinoffs

Wyndham weighs a second spinoff

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On June 1, 2018, Wyndham Worldwide (old New York symbol WYN)completed its spinoff of Wyndham Hotels. Investors received one share of the new company for each WYN share they held. The remaining firm then changed its name to Wyndham Destinations (New York symbol WYND).

The split left each company to concentrate on its core businesses, and we feel that brightens their outlook. While Wyndham Hotels has declined 15% since the split and Wyndham Destinations, 10%, each stands to gain from higher vacation spending by retiring baby boomers. Travel-loving millennials should also support their future growth.

What’s more, Wyndham Destinations is now looking to sell or spin off its vacation rentals business. That would unlock more of the company’s value.

WYNDHAM DESTINATIONS INC. $42 (New York symbol WYND; Consumer sector; Shares outstanding: 94.6 million; Market cap: $4.0 billion; Dividend yield: 4.3%; Takeover Target Rating: Medium; is the world’s largest vacation ownership and exchange company. It operates 273 vacation timeshare resorts with over 900,000 owners.

  • In July 2006, Cendant Corp. distributed its 100% holding in Wyndham Worldwide to its shareholders
  • Wyndham Destinations is studying options for its vacation rental business (23% of revenue)
  • Wyndham Hotels’ revenue per available room rose 8.4% in 2018

The company also operates the world’s largest vacation exchange network. For a fee, those members can swap Wyndham timeshare stays, or timeshare stays with other operators, among themselves. Wyndham’s network includes industry leader RCI and comprises over 9,000 properties in over 100 countries.

Based on pro-forma numbers provided by the company, Wyndham Destination’s revenue rose 12.4%, from $3.50 billion in 2014 to $3.93 billion in 2018. That excludes revenue from Wyndham Hotels.

Earnings from ongoing operations jumped 40.5%, from $269 million in 2014 to $378 million in 2015. The company is an aggressive buyer of its own shares, so earnings per share rose at a faster pace of 50.0%, from $2.12 to $3.18.

Costs related to the early retirement of debt cut earnings to $3.17 a share (or a total of $352 million) in 2016. Earnings then rebounded to $6.22 a share (or $646 million) in 2017 due to a one-time tax benefit. They then fell to $2.68 a share (or $266 million) in 2018.

If you disregard all unusual items, including a gain on the sale of the company’s European operations and the impact of hurricanes, earnings per share improved 12.8%, from $4.29 in 2017 to $4.84 in 2018.

That gain reflects a 6.2% rise in sales of vacation ownership properties and a 1.3% increase in timeshare members.

As of December 31, 2018, Wyndham Destinations held cash of $218 million. Its total debt was $2.9 billion, or a high 73% of its market cap. However, the company doesn’t have to pay back most of those loans until 2021.

Wyndham Destinations trades at just 8.2 times its forecast 2019 earnings of $5.15 a share. It just raised its dividend by 9.8%. The new annual rate of $1.80 a share yields a high 4.3%.

Wyndham Destinations is a buy.

WYNDHAM HOTELS & RESORTS INC. $52 (New York symbol WH; Consumer sector; Shares outstanding: 97.9 million; Market cap: $5.1 billion; Dividend yield: 2.2%; Takeover Target Rating: Medium; is the world’s largest hotel franchise company with 809,900 rooms spread across 9,157 hotels and more than 80 countries.

The company’s 20 hotel brands include Super 8, Days Inn, Ramada, Wingate, Hawthorn Suites and Wyndham.

On a pro-forma basis, Wyndham Hotel’s revenue rose 18.0%, from $1.10 billion in 2014 to $1.30 billion in 2015. Revenue then declined to $1.27 billion in 2016, but recovered to $1.28 billion in 2017.

In 2018, the company acquired hotel operator La Quinta Holdings for $1.95 billion. It has over 87,500 rooms in the U.S., Canada, and Latin America. As a result of that purchase, Wyndham Hotel’s revenue jumped 45.9% to $1.87 billion in 2018.

Earnings fell from $1.52 a share (or a total of $152 million) in 2014 to $1ss.49 a share (or $149 million) in 2015. Earnings rebounded to $1.76 a share (or $176 million) in 2016, and rose again to $2.31 a share (or $230 million).

Due to the higher interest costs on the loans it used to buy La Quinta, earnings fell to $1.62 a share (or $162 million) in 2018. Without unusual items, earnings per share jumped 44.9%, from $1.87 in 2017 to $2.71 in 2018.

Wyndham Hotels’ total debt was $2.1 billion as of December 31, 2018. That’s a manageable 41% of its market cap. It also held cash of $366 million.

The company expects to earn between $3.05 and $3.17 a share in 2019. The stock trades at 16.7 times the midpoint of that range. Wyndham Hotels also just increased its quarterly dividend by 16.0%, to $0.29 a share from $0.25. The new annual rate of $1.16 yields 2.2%.

Wyndham Hotels & Resorts is a buy.


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