Company Reports

Despite near-term macroeconomic challenges for the consumer—still-elevated inflation, depleted consumer savings, we expect Wyndham Hotels & Resorts to gradually expand room share in the hotel industry and maintain a brand intangible asset and switching cost advantage. This view is supported by the company's roughly 40% share of all US economy and midscale branded hotels (where Wyndham has a handful of the top 10 brands based on guest satisfaction, according to J.D. Power) and the industry’s fourth-largest loyalty program by membership (110 million as of June 30, 2024), which encourages third-party hotel owners to join the platform. Also, Wyndham has around 10% and 5% share of existing US and global hotel rooms, respectively, with a pipeline that represents around 28% of its current unit base. As a result, we see room growth averaging over 3%-4% during the next 10 years (2024-33), above the 1%-2% lift we model for the US hotel industry. Further, we forecast around 2% annual revenue per available room growth through the rest of this decade, aided by further price and occupancy increases, as well as incremental demand from increased US infrastructure build out.

Despite normalizing revenue per available room growth of 2% in constant currency versus 8% in 2023—roughly in line with historical (1988-2019) average in the US economy/midscale segments—Wyndham shares moved up 7% during July 25 trading. We attribute this to signs that the brand (primary source of its narrow moat) is well intact, combined with solid EBITDA performance.

Despite near-term macroeconomic challenges for the consumer—still-elevated inflation, depleted consumer savings, we expect Wyndham Hotels & Resorts to gradually expand room share in the hotel industry and maintain a brand intangible asset and switching cost advantage. This view is supported by the company's roughly 40% share of all US economy and midscale branded hotels (where Wyndham has a handful of the top 10 brands based on guest satisfaction, according to J.D. Power) and the industry’s fourth-largest loyalty program by membership (108 million as of March 31, 2024), which encourages third-party hotel owners to join the platform. Also, Wyndham has around 10% and 5% share of existing US and global hotel rooms, respectively, with a pipeline that represents around 28% of its current unit base. As a result, we see room growth averaging over 3%-4% during the next 10 years (2024-33), above the 1%-2% lift we model for the US hotel industry. Further, we forecast around 3% annual revenue per available room growth through the rest of this decade, aided by further price and occupancy increases, as well as incremental demand from increased US infrastructure build out.

Narrow-moat Wyndam’s global constant-currency revenue per available room increased just 1% in the first quarter as the hotelier faced its hardest comparison of the year (12% growth) as well as calendar and weather headwinds. We still believe Wyndham will achieve its 2%-3% constant-currency revPAR growth target for the year, driven by easing comparisons and international demand. In fact, revenue on the books for May is pacing up 7%. We don’t plan a material change to our $88 fair value estimate and think Wyndham’s current 11.5 times forward enterprise value/EBITDA multiple should expand to be closer to narrow-moat peer Choice’s 13 times given similar competitive positioning and growth opportunities.

We applaud narrow-moat Choice Hotels' decision to halt the pursuit of a merger with narrow-moat Wyndham Hotels & Resorts. We've believed for months that the deal would face regulatory and shareholder hurdles, potentially hindering development for the companies. The market seemed to share our sentiment, sending Choice shares up around 5% during March 11 trading, leaving them slightly overvalued relative to our unchanged $120 fair value estimate. We see a more attractive opportunity for investors to own Wyndham, whose shares were flat on the news, keeping them undervalued relative to our $88 fair value estimate, which is near the valuation Choice had been offering for the hotelier.

Despite near-term macroeconomic challenges for the consumer—still-elevated inflation, depleted consumer savings, and a resumption of student loan payments—and uncertainty around Choice's unsolicited bid for the company, we expect Wyndham Hotels & Resorts to gradually expand room share in the hotel industry and maintain a brand intangible asset and switching cost advantage. This view is supported by the company's roughly 40% share of all U.S. economy and midscale branded hotels (where Wyndham has a handful of the top 10 brands based on guest satisfaction, according to J.D. Power) and the industry’s fourth-largest loyalty program by membership (106 million as of Dec. 31, 2023), which encourages third-party hotel owners to join the platform. Also, Wyndham has around 10% and 5% share of existing U.S. and global hotel rooms, respectively, with a pipeline that represents around 28% of its current unit base. As a result, we see room growth averaging over 3%-4% during the next 10 years (2024-33), above the 1%-2% lift we model for the US hotel industry.

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.

Despite near-term macroeconomic challenges for the consumer—still-elevated inflation, depleted consumer savings, and a resumption of student loan payments—and uncertainty around Choice's unsolicited bid for the company, we expect Wyndham Hotels & Resorts to gradually expand room share in the hotel industry and maintain a brand intangible asset and switching cost advantage. This view is supported by the company's roughly 40% share of all U.S. economy and midscale branded hotels (where Wyndham has a handful of the top 10 brands based on guest satisfaction, according to J.D. Power) and the industry’s fourth-largest loyalty program by membership (105 million as of Sept. 30, 2023), which encourages third-party hotel owners to join the platform. Also, Wyndham has around 10% and 5% share of existing U.S. and global hotel rooms, respectively, with a pipeline that represents around 28% of its current unit base. As a result, we see room growth averaging over 3%-4% during the next 10 years (2023-32), above the 1%-2% lift we model for the U.S. hotel industry.

Despite near-term macro challenges (inflation, depleted consumer savings, and credit) and uncertainty around Choice's unsolicited bid for the company, we expect Wyndham Hotels & Resorts to gradually expand room share in the hotel industry and maintain a brand intangible asset and switching cost advantage. This view is supported by the company's roughly 40% share of all U.S. economy and midscale branded hotels (where Wyndham has a handful of the top 10 brands based on guest satisfaction, according to J.D. Power) and the industry’s fourth-largest loyalty program by membership (105 million as of Sept. 30, 2023), which encourages third-party hotel owners to join the platform. Also, Wyndham has around 10% and 5% share of existing U.S. and global hotel rooms, respectively, with a pipeline that represents around 28% of its current unit base. As a result, we see room growth averaging over 3%-4% during the next 10 years (2023-32), above the 1%-2% lift we model for the U.S. hotel industry.

With Wyndham's third-quarter results coming in largely as planned, the focus turned to Choice's unsolicited bid for the company. While we believe the combined company would yield scale benefits, we continue to see hurdles to the deal ultimately being approved by shareholders and the Federal Trade Commission, as outlined in our Oct. 18 note and supported by Wyndham's Oct. 26 presentation. Namely, we think the over 50% economy/midscale brand share of a merged entity could lead to a delayed review period (which Wyndham claims could take 12-18 months) and impact development for either company. Also, having 40%-45% of the offer tied to Choice's share price adds an element of uncertainty on the ultimate transaction price; already, the $90 per share offer price made public mid-October has dropped to around $86 due to the decline in Choice's stock price to about $113.

After further digesting narrow-moat Choice’s hostile bid for narrow-moat Wyndham Hotels, we see additional factors that need to be considered, which ultimately could hinder the existing offer from gaining Federal Trade Commission and/or shareholder approval. While we still think a $90 per-share valuation for Wyndham is reasonable on the surface, the attractiveness becomes more diluted by some key details. To begin with, around 40%-45% of the hostile bid is Wyndham shareholders receiving Choice shares, and if the price of the latter falls, so would the $90 offer price. The performance of Choice shares can be influenced by the development prospects of both companies. In this vein, there could be resistance from some third-party owners within one of these companies’ networks to want to be part of a combined business, despite the long-term scale advantages we think can come from a larger loyalty, distribution, reservation, and marketing program. Additionally, if regulators focus on the roughly 50% brand share the combined company would have in the economy and midscale segments, which is a distinct possibility, it could face an extended review period. During this time the overhang of the uncertainty of the deal could hit the development growth and share price performance of either company. Last, the more than $4 billion in debt Choice stands to raise under the existing hostile bid will take time to pay down and could hit its near-term capital needs, influencing its development growth and share price.

We think narrow-moat Choice’s hostile bid for narrow-moat Wyndham would, if completed, make a combined entity more competitive than each of them is on a stand-alone basis as scale entices both third-party owners and travelers to join operator ecosystems in the hotel industry. To this point, a combined company would double its revenue share to around 4%, according to Euromonitor, matching number-three player narrow-moat InterContinental, or IC, while still trailing narrow-moat companies Hilton and Marriott. Further, it would expand Choice’s room base to over 1.4 million from more than 600,000, making it second only to Marriott’s 1.6 million. It would also combine Wyndham’s more than 100 million loyalty members with Choice’s 60 million, getting it closer to industry leader Marriott’s 186 million. As a result, a merged entity would be able to offer owners increased procurement, distribution, loyalty, and reservation advantages, while travelers would have more hotel choice.

Despite near-term macro challenges (inflation, labor market, and credit), we expect Wyndham Hotels & Resorts to gradually expand room share in the hotel industry and maintain a brand intangible asset and switching cost advantage. This view is supported by the company's roughly 40% share of all U.S. economy and midscale branded hotels (where Wyndham has a handful of the top 10 brands based on guest satisfaction, according to J.D. Power) and the industry’s fourth-largest loyalty program by membership (103 million as of June 30, 2023), which encourages third-party hotel owners to join the platform. Also, Wyndham has around 10% and 5% share of existing U.S. and global hotel rooms, respectively, with a pipeline that represents around 27% of its current unit base. As a result, we see room growth averaging over 3%-4% during the next 10 years (2023-32), above the 1%-2% lift we model for the U.S. hotel industry.

Despite near-term macro challenges (inflation, labor market, and credit), we expect Wyndham Hotels & Resorts to gradually expand room share in the hotel industry and maintain a brand intangible asset and switching cost advantage. This view is supported by the company's roughly 40% share of all U.S. economy and midscale branded hotels (where Wyndham has a handful of the top 10 brands based on guest satisfaction, according to J.D. Power) and the industry’s fourth-largest loyalty program by membership (103 million as of June 30, 2023), which encourages third-party hotel owners to join the platform. Also, Wyndham has around 10% and 5% share of existing U.S. and global hotel rooms, respectively, with a pipeline that represents around 27% of its current unit base. As a result, we see room growth averaging over 3%-4% during the next 10 years (2023-32), above the 1%-2% lift we model for the U.S. hotel industry.

Wyndham Hotels & Resorts shares traveled higher on the back of another solid earnings report showing that demand for the company's brand (the source of its narrow moat) is resonating with visitors and owners. We don’t plan a material change to our $89 fair value estimate and believe the shares should trade closer to a 14-15 times forward enterprise value/EBTIDA multiple versus the current 12-13 times.

Despite near-term macro challenges (inflation, labor market, and credit), we expect Wyndham Hotels & Resorts to gradually expand room share in the hotel industry and maintain a brand intangible asset and switching cost advantage. This view is supported by the company's roughly 40% share of all U.S. economy and midscale branded hotels (where Wyndham has a handful of the top 10 brands based on guest satisfaction, according to J.D. Power) and the industry’s fourth-largest loyalty program by membership (99 million as of Dec. 31, 2022), which encourages third-party hotel owners to join the platform. Also, Wyndham has around 10% and 5% share of existing U.S. and global hotel rooms, respectively, with a pipeline that represents around 27% of its current unit base. As a result, we see room growth averaging over 3%-4% during the next 10 years (2023-32), above the 1%-2% lift we model for the U.S. hotel industry.

Despite near-term macro challenges (inflation, labor market, and credit), we expect Wyndham Hotels & Resorts to gradually expand room share in the hotel industry and maintain a brand intangible asset and switching cost advantage. This view is supported by the company's roughly 40% share of all U.S. economy and midscale branded hotels (where Wyndham has a handful of the top 10 brands based on guest satisfaction, according to J.D. Power) and the industry’s fourth-largest loyalty program by membership (99 million as of Dec. 31, 2022), which encourages third-party hotel owners to join the platform. Also, Wyndham has around 10% and 5% share of existing U.S. and global hotel rooms, respectively, with a pipeline that represents around 27% of its current unit base. As a result, we see room growth averaging over 3%-4% during the next 10 years (2023-32), above the 1%-2% lift we model for the U.S. hotel industry.

Narrow-moat Wyndham’s first-quarter results and 2023 outlook continue to point toward resilient travel demand, even as macro clouds (higher inflation, softening labor markets, tightening credit availability) persist. Our $88 per share fair value estimate should not materially change on Wyndham’s report, and we believe shares should trade around a 15 times 2023 EV/EBITDA multiple versus the current 12 times valuation.

Despite near-term inflation challenges, we expect Wyndham Hotels & Resorts to gradually expand room share in the hotel industry and maintain a brand intangible asset and switching cost advantage. This view is supported by the company's roughly 40% share of all U.S. economy and midscale branded hotels (where Wyndham has a handful of the top 10 brands based on guest satisfaction, according to J.D. Power) and the industry’s fourth-largest loyalty program by membership (99 million as of Dec. 31, 2022), which encourages third-party hotel owners to join the platform. Also, Wyndham has around 10% and 5% share of existing U.S. and global hotel rooms, respectively, with a pipeline that represents around 25% of its current unit base. As a result, we see room growth averaging over 3%-4% during the next 10 years (2023-32), above the 2% lift we model for the U.S. hotel industry.

After its fourth-quarter report, we plan to lift Wyndham’s $85 fair value estimate by around $6 per share to account for stronger sales, profits, and time value, leaving shares slightly undervalued.