Wyndham Earnings: Owners Continue to Gravitate to the Hotelier's Brands Despite Merger Uncertainty

Our biggest takeaway from narrow-moat Wyndham Hotels & Resorts' fourth-quarter results was that development prospects for the company remain strong despite potential disruption from narrow-moat Choice Hotels' hostile bid. Unit growth was 3.5% versus our 3% forecast, with the pipeline up 10% to 240,000 rooms. Wyndham’s new extended-stay product, Echo, continues to see good success with 268 contracts representing 33,000 rooms, or 14% of the total pipeline. Further, Wyndham’s overall 16% cash-on-cash return for new construction, despite high financing costs, should remain attractive for third-party owners. This gives us confidence in our 2024 unit growth forecast of 3.5%, harmonizing with management’s 3%-4% target, followed by our estimate for 4% annually in 2025-28.