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Wyndham Worldwide Corporation Analysis – August 2015 Update $WYN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Wyndham Worldwide Corporation (WYN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Wyndham Worldwide Corporation is a hospitality company. The Company offers individual consumers and business customers a wide range of hospitality services and products through a portfolio of brands, including Wyndham Hotels and Resorts, Ramada, Days Inn, Super 8, Howard Johnson, Wingate by Wyndham, Microtel Inns & Suites, Tryp by Wyndham, RCI, Landal GreenParks, and others. The Company operates through three segments: Lodging, which franchises hotels in the upscale, upper midscale, midscale, economy and extended stay segments and provides hotel management services for service hotels; Vacation exchange and rentals, which provides vacation exchange services and products to owners of intervals of vacation ownership interests (VOIs) and markets vacation rental properties, and Vacation ownership, which develops, markets and sells VOIs to individual consumers, provides consumer financing in connection with the sale of VOIs, and provides property management services at resorts.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of WYN

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Fail
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 3.92
MG Growth Estimate 15.00%
MG Value $150.95
Opinion Undervalued
MG Value based on 3% Growth $56.85
MG Value based on 0% Growth $33.33
Market Implied Growth Rate 5.70%
Current Price $78.04
% of Intrinsic Value 51.70%

Wyndham Worldwide Corporation does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth or stability over the last ten years, short dividend history, and the high PB ratio.  The Enterprising Investor is concerned with the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.05 in 2011 to an estimated $3.92 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.7% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Wyndham Worldwide Corporation (WYN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

WYN Charts - August 2015

Net Current Asset Value (NCAV) -$56.62
PEmg 19.90
Current Ratio 1.00
PB Ratio 8.78
Dividend Yield 1.97%
Number of Consecutive Years of Dividend Growth 6

 

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Most Recent Balance Sheet Figures

Total Current Assets $2,164,000,000
Total Current Liabilities $2,163,000,000
Long-Term Debt $4,983,000,000
Total Assets $10,024,000,000
Intangible Assets $2,729,000,000
Total Liabilities $8,958,000,000
Shares Outstanding (Diluted Average) 120,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.89
Dec14 $4.18
Dec13 $3.21
Dec12 $2.75
Dec11 $2.51
Dec10 $2.05
Dec09 $1.61
Dec08 -$6.05
Dec07 $2.20
Dec06 $1.44
Dec05 $2.15
Dec04 $1.74
Dec03 $1.49
Dec02 $1.54

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.92
Dec14 $3.27
Dec13 $2.69
Dec12 $1.81
Dec11 $1.05
Dec10 $0.29
Dec09 -$0.30
Dec08 -$0.74
Dec07 $1.88
Dec06 $1.70
Dec05 $1.68
Dec04 $1.29
Dec03 $0.91
Dec02 $0.51

Recommended Reading:

Other ModernGraham posts about the company

19 Companies to Research This Week – 8/23/14
Wyndham Worldwide Corporation Annual Valuation – 2014 $WYN

Other ModernGraham posts about related companies

Wynn Resorts Analysis – June 2015 Update $WYNN
International Game Technology Quarterly Valuation – March 2015 $IGT
Wynn Resorts Limited Quarterly Valuation – March 2015 $WYNN
Wynn Resorts Limited Quarterly Valuation – December 2014 $WYNN
Wynn Resorts Limited Quarterly Stock Valuation – September 2014 $WYNN

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

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