Wyndham’s Demand Growing, Driven by Overseas and U.S. Infrastructure Growth

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

Reported global revenue per available room rose to 110% of 2019′s level (115% in constant currency) versus our 102% forecast and 105% last quarter, allowing full-year 2022 revPAR to finish up 16.5% compared with 2021. Strength was across both the U.S., where revPAR jumped to 115% of 2019′s level in the quarter from 110% three months prior, and international, which printed revPAR at 104% of prepandemic marks versus 98% in the previous quarter. Wyndham noted the first six weeks of this year have seen a 6% year-over-year lift in its U.S. revPAR and that it expects 2023 global revPAR growth of 4%-6%, above the 2% we were expecting (we plan to lift our forecast to 5%). The hotelier is optimistic about further international revPAR recovery, driven by occupancy, which was just 79% of 2019′s level in 2022. Meanwhile, 2022 EBITDA was $650 million, above our $643 million estimate, with 2023 guidance for $650 million-$660 million, also above our $634 million forecast, which we plan to lift.

Wyndham’s brand intangible asset (the source of its narrow moat) is intact, witnessed by 4% unit growth in 2022 (matching our forecast), aided by 80 basis points through acquisition. We think Wyndham can expand its organic unit growth toward 4% by 2025. This view is supported by its pipeline, which was up 12% year over year, and improving retention of existing hotels, which grew to a 95.3% rate in 2022 versus 95% in 2021 and is targeted to expand toward 96% in coming years. Specifically, Wyndham’s new extended-stay brand, Echo (launched last March) added 50 hotels to its pipeline and now totals 170 units. Also, the company mentioned that it is seeing no impact from narrow-moat Hilton’s premium economy brand launch, given the strong return on investment it offers third-party hotel owners.