Wyndham Earnings: Merger With Choice Remains Uncertain, but Development Continues to Rise

With Wyndham’s WH third-quarter results coming in largely as planned, the focus turned to Choice’s unsolicited bid for the company. While we believe the combined company would yield scale benefits, we continue to see hurdles to the deal ultimately being approved by shareholders and the Federal Trade Commission, as outlined in our Oct. 18 note and supported by Wyndham’s Oct. 26 presentation. Namely, we think the over 50% economy/midscale brand share of a merged entity could lead to a delayed review period (which Wyndham claims could take 12-18 months) and impact development for either company. Also, having 40%-45% of the offer tied to Choice’s share price adds an element of uncertainty on the ultimate transaction price; already, the $90 per share offer price made public mid-October has dropped to around $86 due to the decline in Choice’s stock price to about $113.

Turning to the third quarter, revenue per available room, or revPAR, grew 3%, with the U.S. down 1% (amounting to 109% of 2019′s level on a constant currency basis) and international markets up 16% (145%). We don’t plan to alter our 2023 5% revPAR growth forecast, harmonizing with Wyndham’s reiterated guidance of 4%-6%.

Despite the overhang of the Choice bid, Wyndham’s development continues to grow, showcasing that the company’s brand (source of its narrow moat) is resonating with owners. In this vein, its room pipeline lifted 10%, the 13th straight quarter of growth, while its net unit growth increased 2.6%, representing the 11th consecutive quarter of growth. Further, retention rates increased another 20 basis points.

While we have been steadfast on travel demand resiliency since the summer of 2020, we expect Wyndham’s revPAR growth to decelerate to around 2% in 2024 (down from our 3% prior forecast), driven by mounting headwinds, such as lasting inflation and depleted consumer savings. As a result, we plan to lower our (stand-alone) $89 per share Wyndham valuation by a low-single-digit percentage.