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Wyndham Takeover: Valuation Discussions Heat Up as Choice Hotels Weighs the Decision!

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Wyndham Taeover: Wyndham Hotels & Resorts Inc has been performing well, with strong financial results in the first quarter of 2023 and a positive outlook for the full year. The company’s development pipeline has grown by 11%, and Global RevPAR has increased by 12%. Furthermore, Wyndham has a strong global presence with over 9,000 hotels worldwide, and a diverse portfolio of brands catering to a wide range of customer segments. Its robust recovery from the impact of the COVID-19 pandemic, effective cost management strategies, and pipeline of new hotels represent significant growth opportunities. These factors may have increased the company’s attractiveness to potential acquirers. While talks of a possible acquisition by Choice Hotels International have not yet been confirmed, if it were to happen, it could create one of the largest budget hotel chains in the U.S.

Wyndham Takeover in the Spotlight: A Potential Takeover on the Horizon?

Wyndham Hotels (NYSE:WH), a renowned name in the hospitality industry, has recently been making headlines with reports of a potential acquisition by Choice Hotels International (NYSE:CHH). This news has stirred up the market, causing Wyndham’s stock to surge by as much as 13% before settling at a 6.6% gain. Meanwhile, Choice Hotels saw a slight dip of 1.7%.

Discovering Growth Drivers for WH Stock:

  • Strong Financial Performance: Wyndham’s Q1 2023 earnings report showed strong financial performance, with significant growth in revenue and earnings per share. This strong performance is likely to have attracted the interest of potential acquirers.
  • Brand Strength and Global Presence: Wyndham’s strong brand and extensive global presence, with over 9,000 hotels worldwide, make it an attractive target for acquisition. The company’s diverse portfolio of brands caters to a wide range of customer segments, from budget to luxury.
  • Robust Recovery from the Pandemic: Wyndham has demonstrated a robust recovery from the impact of the COVID-19 pandemic, with a significant rebound in occupancy rates and RevPAR (Revenue Per Available Room). This recovery is likely to have boosted its attractiveness to potential acquirers.
  • Strong Pipeline of New Hotels: Wyndham has a strong pipeline of new hotels, which represents a significant growth opportunity. This pipeline is likely to have been a key factor in attracting takeover interest.
  • Effective Cost Management: Wyndham’s effective cost management strategies, including its asset-light business model and focus on operational efficiency, have helped to boost its profitability and cash flow. This strong financial position is likely to have made it an attractive target for acquisition.
  • Potential Synergies: Potential acquirers may see opportunities for synergies with their own operations, such as cost savings, cross-selling opportunities, and the ability to leverage Wyndham’s strong brand and global presence.
  • Attractive Valuation: Despite its strong performance and growth prospects, Wyndham’s valuation may be seen as attractive by potential acquirers, providing an opportunity for them to acquire a leading global hotel company at a reasonable price.

Wyndham Takeover: The Potential Acquisition

The Wall Street Journal reported that Choice Hotels International is considering buying Wyndham Hotels. However, it’s important to note that the discussions are not yet serious, and it’s unclear whether Wyndham is open to a transaction. If the acquisition does take place, it would combine brands like Days Inn and Econo Lodge, creating one of the largest budget hotel chains in the U.S.

Wyndham Takeover: The Market Reaction

The market reacted positively to the news, with Wyndham’s stock price experiencing a significant boost. However, the potential acquisition also raised questions about the valuation of both companies.

Wyndham Takeover: Analysts’ Take

Analyst Firm Viewpoint Key Points
Patrick Scholes Truist Skeptical Does not think there is a high likelihood the merger would transpire for several reasons.
David Katz Jefferies Cautious Believes aspects of the potential combination could be challenging. Notes that while increased hotel scale could be positive, a high concentration in the economy segment would raise some debate.
Shaun Kelley Bank of America Positive Thinks the math could work out and that a deal would be materially accretive to Choice at a premium above Wyndham’s current price. Highlights Wyndham as an undervalued franchisor and indicates the potential inherent in Choice’s balance sheet.
Michael Bellisario Baird Positive Suggests that Wyndham was just put in play due to the report. Believes a $80 to $90 share price would be a reasonable range for a deal to be struck by Choice Hotels or another entity.

Wyndham Takeover: Wyndham Hotels & Resorts Q1 2023 Earnings Summary

  • Key Highlights

Wyndham Hotels & Resorts reported a strong first quarter in 2023. The company’s development pipeline grew by 11% and Global RevPAR (Revenue Per Available Room) increased by 12%. Additionally, the company raised its full-year outlook for 2023. The U.S. RevPAR saw a growth of 4% compared to the first quarter of 2022. System-wide rooms also experienced growth, increasing by 4% year-over-year. This includes a 1% growth in the U.S. and a 9% growth internationally. The development pipeline expanded by 11% year-over-year, reaching 226,000 rooms. Signings also increased by 7%, excluding ECHO Suites Extended Stay by Wyndham. The company awarded 35 new construction projects for ECHO Suites Extended Stay by Wyndham, bringing the total number to 205 since its launch in March 2022. Wyndham returned $87 million to shareholders through $56 million of share repurchases and a quarterly cash dividend of $0.35 per share.

  • Financial Results

In terms of financial results, fee-related and other revenues were reported at $308 million, compared to $316 million in the first quarter of 2022. The company generated a net income of $67 million, or $0.77 per diluted share, compared to $106 million, or $1.14 per diluted share, in the first quarter of 2022. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was $147 million, compared to $159 million in the first quarter of 2022.

  • Full-Year 2023 Outlook

Wyndham Hotels & Resorts has increased its outlook for the full year of 2023. The company expects a year-over-year rooms growth of 2 – 4% and a year-over-year global RevPAR growth of 4 – 6%. Fee-related and other revenues are projected to be between $1.38 – $1.41 billion. Adjusted EBITDA is expected to be between $654 – $664 million. Adjusted net income is forecasted to be between $340 – $352 million. Adjusted diluted EPS (Earnings Per Share) is anticipated to be between $3.92 – $4.06. The company also expects a free cash flow conversion rate of 50 – 55%.

The Future of Wyndham Hotels

The potential acquisition has put Wyndham Hotels in the spotlight, and the industry is keenly watching the developments. Whether or not Choice Hotels makes a bid, Wyndham Hotels is now considered to be in play. This situation could potentially lead to other interested parties making offers, creating a competitive environment that could benefit Wyndham’s shareholders.

The future of Wyndham Hotels is certainly exciting, and the potential acquisition could mark a significant turning point for the company. As the situation unfolds, investors and industry watchers will be eagerly waiting to see how this potential takeover shapes the future of Wyndham Hotels and the hospitality industry at large.

Wyndham Takeover : An Overview on Valuations

Valuation Ratios Current 2023E 2024E 2025E
EV/ Sales 6.02 6.80 7.00 7.50
EV/ EBITDA 13.49 14.46 14.86 15.82
EV/ EBIT 15.47 17.51 17.80 18.77
Price/Earnings 18.00 22.99 23.74 24.13

Author : Equisights Team

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