Wyndham Hotels & Resorts, Inc.’s WH current valuation is enticing for investors to look into. The stock is currently trading at a discount compared with the Hotels and Motels industry peers. The company’s forward 12-month price-to-earnings (P/E) ratio is 17.5X, which is below the industry average of 20.8X but slightly more than the broader Consumer Discretionary sector’s 17.08X.

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The company’s valuation trend can be compared with the other renowned industry players, including Marriott International, Inc. MAR, Hilton Worldwide Holdings Inc. HLT and Hyatt Hotels Corporation H, which are notably premium valued compared with the industry. Marriott, Hilton and Hyatt are currently trading at 22.11X, 26.46X and 38.86X, respectively, on a forward 12-month P/E ratio basis.

Wyndham’s focus on expanding into key, high-return markets, mainly concentrating on high FeePAR (annual royalties per room) properties, an asset-light resilient business model and ensuring shareholder value are fostering its prospects.

WH stock has trended down 7.6% in the past month, riding below its industry, which has tumbled 6.2%. During the said time frame, the stock has also underperformed the broader sector’s 3.3% decline and the S&P 500 index’s 2.1% downtrend. However, the share price trends of the company reflect it outshining its peers, Marriott, Hilton and Hyatt, during the past month. The detailed price performance of the industry players is shown in the chart below.

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Despite the in-house efforts of the company, the ongoing macro headwinds, elevated costs and expenses and unfavorable foreign currency impacts are woes.

Tailwinds to Wyndham’s Prospects

Wyndham operates in the global market, which gives it space to expand its presence in high-returning markets. With the global expansion opportunities, the company is currently focusing on making investments to attract visitors to higher FeePAR properties in strategic markets. In 2024, WH added 68,700 rooms globally, indicating growth of 4% year over year, with 27,800 rooms in the United States and 40,900 rooms internationally. In the international market, the company is benefiting mainly from expanding in the EMEA and Latin America regions. As of Dec. 31, 2024, its global development pipeline consisted of approximately 2,100 hotels and 252,000 rooms, indicating 5% year-over-year growth.

Notably, the company operates under an asset-light business model, which helps it limit its capital needs and reduce physical risks. Through this operating model, it can foster its free cash flow and ensure efficient capital management. Wyndham effectively reinvests its free cash to bolster its business growth and maintain profitability, along with ensuring shareholder value.

The company indulges in ensuring shareholder value through share repurchases and dividend payments. In 2024, Wyndham returned $430 million to its shareholders through $308 million of share repurchases and quarterly cash dividends of $0.38 per share. Furthermore, during the fourth-quarter 2024 earnings call, the company announced an 8% hike in its quarterly dividend payment to 41 cents per share ($1.64 per share annually).

WH’s ROE Trend

The company’s trailing 12-month return on equity (ROE) reflects its growth potential and focus on maintaining shareholder value. As evidenced by the chart below, WH’s ROE is significantly better compared with the industry.

Image Source: Zacks Investment Research

Headwinds to Wyndham’s Prospects

The ongoing macro headwinds are causing global market unrest, which is accompanied by lingering inflationary pressures. Through strategic initiatives, the company is increasing its top line and profitability, but the elevated costs and expenses are pressuring the prospects to some extent.

During 2024, Wyndham’s total expenses increased 2% year over year to $913 million. The uptick was mainly caused by high marketing, reservation and loyalty expenses.

WH’s Estimate Trend

Earnings estimates for 2025 have inched down in the past seven days by 0.2%, indicating bearish sentiments amongst analysts amid ongoing market uncertainties. However, the year-over-year expected growth rate for 2025 earnings is currently 11.1%, with a 10.3% increase projected for the first quarter. The uptrend reflects potential from WH’s successful effort in global expansion and the benefits of the asset-light model.

EPS Trend

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What are the Thoughts on Investment?

Per the above discussion, Wyndham is realizing the benefits from its asset-light business model, which is aimed at increasing its free cash flow. This, alongside its global expansion efforts and focus on high FeePAR properties, is boding well globally.

However, macroeconomic adversities and lingering inflationary pressures are hindering its prospects, clouding the judgment of the investors regarding undertaking favorable decisions for WH stock.

Thus, considering both sides of the market scenario, it is prudent for existing investors to retain this Zacks Rank #3 (Hold) company’s shares for now, whereas new investors might want to wait for a more favorable entry point.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Marriott International, Inc. (MAR) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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