Studies show that both a spinoff and its former parent company perform better than comparable firms for several years following their split. That’s especially so with industry leaders like these now-independent firms.
The world’s largest vacation ownership and exchange company and the world’s largest hotel franchise company focus on different segments of the hospitality business, but both reported strong revenue and earnings growth in the latest quarter.
Why Spinoffs are Special
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WYNDHAM DESTINATIONS (New York symbol WYND; www.wyndhamdestinations.com) is the former Wyndham Worldwide (WYN). It changed its name at the same time it spun off Wyndham Hotels on June 4, 2018.
Wyndham Destinations is the world’s largest vacation ownership and exchange company. It operates 220 vacation timeshare resorts with almost 900,000 owners. The company also operates the world’s largest vacation exchange network. Those members can swap Wyndham timeshare stays, or timeshare stays with other operators, among themselves for a fee. Wyndham’s network includes industry leader RCI and comprises over 4,300 properties in over 100 countries.
Wyndham Destinations has more resorts (221) than its three main competitors combined (156).
On a pro-forma basis, Wyndham Destination’s revenue rose 12.9%, from $3.37 billion in 2013 to $3.81 billion in 2017. During that time, revenue from its Vacation Ownership operations (75% of the total) gained 14.6%. Revenue from Exchange and Rentals (25%) improved 8.3%.
And in the most recent quarter ended September 30, 2018, overall revenue rose 4.6%, to $1.06 billion from $1.02 billion a year earlier.
Wyndham Destinations’ earnings rose 10.6%, to $146.0 million from $132.0 million. Per-share earnings rose 14.8%, to $1.47 from $1.28, on fewer shares outstanding.
The shares trade at just 7.3 times the forecast 2019 earnings of $5.15 a share. The stock yields a high 4.0%
Recommendation in Stock Picker’s Digest:Wyndham Destinations is a buy.
WYNDHAM HOTELS & RESORTS (New York symbol WH; www.wyndhamhotels.com) is the world’s largest hotel franchise company with 798,000 rooms spread across 9,000 hotels and more than 80 countries.
The company’s 20 hotel brands include Super 8, Days Inn, Ramada, La Quinta, Wingate, AmericInn, Hawthorn Suites and Wyndham.
In mid-2017, Wyndham added The Trademark Hotel Collection as its 19th hotel brand.
Trademark is designed for independent entrepreneurs who have built “iconic” hotel properties and are looking to boost their businesses with Wyndham’s support and loyalty program. The brand is aimed at hoteliers who operate 3- to 4-star properties and want to maintain their individuality.
Trademark is a direct competitor to Choice Hotels’ Ascend Collection and Hilton’s Tapestry Collection.
The Trademark Hotel Collection now encompasses more than 100 hotels worldwide, including 50 in the U.S.
That brand will soon have 12 hotels in Canada: five have opened doors in British Columbia and Ontario, and another seven are set to open within the next year in Nova Scotia, New Brunswick, Alberta, and Saskatchewan.
Unlike Wyndham’s “hard” hotel brands, such as Grand and Travelodge, Trademark is a “soft” brand. That means it’s more loosely defined and allows independent hoteliers to maintain their own unique branding. They will, however, gain access to the more than 50 million Wyndham Rewards members and the company’s global distribution network of more than 9,000 hotels.
In May 2018, the company completed the sale of its Knights Inn economy brand. It consists of about 350 franchised hotels with roughly 21,000 rooms.
Value Stocks: La Quinta acquisition boosts sales and profits
In the three months ended September 30, 2018, overall revenue jumped 74.1%, to $604.0 million from $347.0 million a year earlier. The gain came mostly from the $2 billion acquisition in May 2018 of La Quinta’s 900 hotels, with nearly 89,000 rooms. That addition more than offset the revenue loss due to the Knights Inn sale. Earnings per share rose 39.3%, to $0.85 from $0.61.
Wyndham re-launched its Wyndham Rewards loyalty program in 2015 to attract more customers. The program now has more than 59 million members. To add to its attractiveness, the company lets plan members redeem their points through Wyndham Destinations for timeshare stays.
Wyndham Hotels pays a quarterly dividend of $0.25 a share for a current yield of 1.8%. The stock trades at 14.3 times the forecast 2019 earnings of $3.29 a share.
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