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Why Wyndham Hotels Is The Industry Value Play, An Earnings Story

Wyndham Hotels stock price There is a delayed reaction from markets regarding Wyndham Hotels & Resorts (NYSE: WH), as the stock shows little to no change after the company reports its second quarter 2023 earnings results. The stock has struggled to find proper direction during the past year, as it has traded in a tight channel since June of 2022.

Investors had been waiting on a proper catalyst to push the stock one way or another; it seems that the company's management took notice of the need for a directional push. Now that timing forces are beginning to favor the company; it is all a matter of time before markets reward the stock with some good old favoritism.

Other competitors in the space, names like Choice Hotels International (NYSE: CHH) and Atour Lifestyle Holdings (NASDAQ: ATAT), have won the market's popularity contest during the past year, which only leaves more gaps to fill by Wyndham via an overdue rally. Analyst ratings and management commentary outlooks may give way to the foundation for a new bull run in Wyndham.

Why There is Likely no Downside

Wyndham stock has been trading in an approximately $20 range, hovering between $60 and $80 per share for the past 12 months. This will mean little for investors once they realize what has held up the stock at this $ 60-ish support. The 200-day moving average, otherwise known as the mother of the directional averages, is the one holding it all together.

The last time the stock touched this moving average was as recent as June of 2023, making this the fifth time the price meets and rejects the primary technical level. This is important for investors since, as stocks choose to cross above or below this moving average, a significant trend continuation - or inversion - is likely to follow.

Wyndham Hotels stock chart  Considering that the stock refused - and continues to refuse - breaking below the 200-day moving average, as shown by the purple line across the white price bars in the image above, investors can lean on the fact that markets are not entirely done seeing the stock rising just yet.

Now that markets have shown investors no interest in lowering the stock, it is an excellent time to start considering if there is room for the company to stand up without hitting a close ceiling. The best place to start is gauging where markets value Wyndham's future financial prospects relative to peers.

Taking the forward price-to-earnings ratio instead of a traditional P/E can give a subtle hint as to where broader markets are seeing higher perceived quality and value. Wyndham stock trades for a discounted 17.3x forward P/E, making it an apt value stock compared to Choice Hotels' 19.3x and Atour Lifestyle's 17.9x multiples. 

These tiny gaps may only seem insignificant once Wyndham analyst ratings are considered. A consensus 15% potential upside from today's prices may turn some heads, especially after bringing the knowledge of a fundamental and technical basement supporting the stock upward.

Earnings Momentum 

Despite a challenging economic environment in the United States, experiencing a year of rampant inflation and raising interest rates slowing down consumer activity, Wyndham managed to achieve an annual 7% net revenue growth. Not only did more customers stay at locations, but management is expecting more demand coming forth.

Wyndham's earnings report shows a 10% annual growth in development pipelines, which can only mean one thing. Management would only look to deploy capital toward developing new capacity if they were confident that new demand tailwinds were being formed. This is one of the many reasons the stock refuses to fall below the 200-day moving average.

Management wanted to place the cherry on top of an already mouthwatering sundae, as they chose to deploy up to $109 million toward repurchasing stock from the open market. Now why else would insiders be looking to buy their stock if not for a line of thought similar to optimistic future outlooks and the belief in current undervaluation?

Outlooks for the full-year 2023 may be less exciting. Still, today's market environment rewards anything pointing to relative growth. With the potential risk of a recession looming over investors' heads, pointing to a 2% to 4% revenue growth and a modest 0.25% to 3.8% growth in earnings per share can be enough to push the stock higher on increased confidence.

Investors can expect a growth catalyst from both ends because further share repurchases may accompany single-digit EPS growth. Higher EPS, with lower shares outstanding, topped with a rising P/E ratio, can make for the perfect storm in rewarding the stock with a new bull run. Downside no more.

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