Wyndham Hotels & Resorts: Positive Adj EBITDA Growth Outlook

Core Insights - The hotel industry is experiencing a positive trend in pipeline growth, with notable year-over-year increases in room signings and net unit growth across major players [1][6][10] - Wyndham Hotels (WH) reported strong financial performance in 2Q24, with EBITDA growth of 13% year-over-year and revenue growth of 3.7%, indicating robust operational health [6][10] - The long-term outlook for the hotel industry remains favorable, driven by demographic trends and increasing travel demand, which supports revenue per available room (RevPAR) growth [7][10] Pipeline and Growth - WH's development pipeline grew to 245,000 rooms, marking a 7.5% year-over-year increase and the 16th consecutive year of growth [6] - The company signed 180 new development contracts in 2Q24, a 33% increase compared to 2Q23, reflecting strong demand in the market [6] - Other hotel chains, such as Marriott and InterContinental Hotels Group, also reported increases in their pipelines, with Marriott adding nearly 18,000 rooms, a 7% increase year-over-year [1][6] Financial Performance - WH's EBITDA for 2Q24 was $178 million, exceeding street estimates by $8 million, with a margin expansion from 43.6% in 2Q23 to 48.5% in 2Q24 [6] - The company expects to achieve a net unit growth of 6% to 6.5% for the full year, excluding planned additions [1][6] - WH's strong balance sheet, with total liquidity of $820 million and a manageable leverage ratio of 3.5x, supports ongoing capital return initiatives, including a $400 million share buyback program [2][6] RevPAR and Occupancy Trends - RevPAR growth for WH was 2% on a constant currency basis, with international RevPAR increasing by 7%, while domestic RevPAR remained flat [6][7] - The occupancy rates improved by approximately 100 basis points in 2Q24, indicating a recovery in demand [6] - Historical trends suggest RevPAR typically grows at 2-3%, and current dynamics indicate that demand may outpace supply, further supporting occupancy rate increases [7] Valuation and Investment Outlook - The target price for WH is set at $98, based on a projected 7% annual EBITDA growth and a $400 million annual buyback [3][9][10] - The total return, including dividend yield, is estimated to be close to 30% [9][10] - The overall sentiment remains positive for WH, with expectations of continued operational performance despite near-term macroeconomic uncertainties [10][13]