On Monday, Stifel, a financial services firm, updated its outlook on Wyndham Hotels & Resorts (NYSE: WH), raising the price target to $91 from the previous $89 while maintaining a Buy rating on the stock. The adjustment comes in light of the hotel chain's record development pipeline, which has seen year-over-year growth. Wyndham's pipeline now includes approximately 2,000 hotels and a record 245,000 rooms, marking a slight increase from last quarter's 243,000 rooms.
The company's growth has been robust, with a 5% year-over-year increase in the United States and an impressive 9% internationally. Notably, 58% of Wyndham's development pipeline is international, and 79% of the projects are new constructions, with 35% already breaking ground. This expansion strategy reflects the company's commitment to global growth and its focus on new property development.
Wyndham's financial health appears promising, with an anticipated free cash flow (FCF) conversion range of around 60% for 2024. This expectation equates to an FCF ranging between $414 million and $420 million, based on the projected EBITDA of $690 million to $700 million. The company's current FCF yield stands at 7.4%, calculated with respect to the 2025 estimated FCF.
In terms of shareholder returns, Wyndham continues to pay a quarterly dividend of $0.38, which currently yields 1.9%. The company's balance sheet as of June 30 shows $50 million of unrestricted cash, total liquidity of $580 million, and a debt load of $2.2 billion. The firm's net debt-to-2025 estimated EBITDA ratio is 3.2x, which is higher than the industry average of 2.5x. Additionally, the net debt-to-enterprise value (EV) is 27.5%, also above the industry average of 18.3%.
Lastly, the valuation of Wyndham's shares currently trades at 11.5 times the adjusted 2025 estimated EBITDA of $740 million. The new price target of $91 is based on a net asset value (NAV) that reflects a multiple of 13.0 times the 2025 estimated EBITDA.
In other recent news, Wyndham Hotels & Resorts reported a solid performance in the second quarter of 2024, with a 6% increase in adjusted EBITDA and a 12% rise in earnings per share.
The company's development team achieved a significant milestone by signing 33% more deals than the previous year, contributing to a record global development pipeline of 245,000 rooms. In addition, they introduced Wyndham Connect, a new guest engagement platform aimed at enhancing customer experiences and boosting ancillary revenues for hotel owners.
Wyndham's outlook for the full year 2024 includes a projection for flat year-over-year RevPAR growth and fee-related and other revenues expected to reach between $1.41 billion and $1.43 billion. Adjusted net income forecast increased to $338 million to $348 million, and adjusted diluted EPS is projected to be in the range of $4.20 to $4.32.
InvestingPro Insights
Wyndham Hotels & Resorts (NYSE: WH) is charting a course of strategic expansion and financial growth that has caught the attention of investors and analysts alike. With a market capitalization of $6.12 billion and a strong gross profit margin of 68.08% over the last twelve months as of Q2 2024, the company's financial footing appears solid. This is further evidenced by an operating income margin of 37.9% for the same period, showcasing efficient management and operational prowess.
InvestingPro Tips highlight that Wyndham's management has been actively repurchasing shares, signaling confidence in the company's value and future. Additionally, the company has consistently raised its dividend for three consecutive years, with a dividend yield of 1.96% as of the latest data, reflecting its commitment to returning value to shareholders. These actions are indicative of a company that is not only growing in terms of its development pipeline but is also focused on enhancing shareholder value.
However, it's important to note that some analysts have tempered their earnings expectations for the upcoming period, with seven analysts revising their earnings downwards. This could suggest a cautious outlook on the company's near-term earnings potential. Moreover, the company is trading at a high Price / Book multiple of 9.82, which could imply a premium valuation compared to its tangible assets. Despite this, the company's profitability over the last twelve months and the prediction that it will remain profitable this year offer reassurance to investors.
For those interested in delving deeper, there are additional InvestingPro Tips available at InvestingPro that could provide further insights into Wyndham's financial nuances and investment potential.
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