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 5 Undervalued Companies for the Enterprising Investor. 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 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 an array of hospitality services and products across various accommodation alternatives and price ranges through its portfolio of brands. It operates in three segments of the hospitality industry: lodging, vacation exchange and rentals and vacation ownership. Its brands include Wyndham Hotels and Resorts, Tryp by Wyndham, Ramada, Days Inn, Super 8, Landal GreenParks, Novasol, Hoseasons, cottages4you, James Villa Holidays, ResortQuest by Wyndham Vacation Rentals, The Resort Company by Wyndham Vacation Rentals, Wyndham Vacation Resorts and WorldMark by Wyndham. In September 2012, its subsidiary, Wyndham Vacation Ownership, acquired Shell Vacations LLC (Shell) and its subsidiaries. In October 2012, the Company’s Wyndham Hotel Group announced the opening of the newly constructed, 250-room TRYP by Wyndham Bogota Embajada, the newest TRYP by Wyndham(SM) hotel in Colombia.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years -Â FAIL
- Dividend Record – has paid a dividend for at least 10 straight years -Â FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -Â PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $79.11 |
| MG Value | $128.46 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $48.38 |
| Value Based on 0% Growth | $28.36 |
| Market Implied Growth Rate | 7.60% |
| Net Current Asset Value (NCAV) | -$50.55 |
| PEmg | 23.71 |
| Current Ratio | 0.95 |
| PB Ratio | 6.66 |
Balance Sheet – 6/30/2014
| Current Assets | $2,054,000,000 |
| Current Liabilities | $2,167,000,000 |
| Total Debt | $4,476,000,000 |
| Total Assets | $9,857,000,000 |
| Intangible Assets | $2,742,000,000 |
| Total Liabilities | $8,373,000,000 |
| Outstanding Shares | 125,000,000 |
Earnings Per Share
| 2014 (estimate) | $4.38 |
| 2013 | $3.20 |
| 2012 | $2.76 |
| 2011 | $2.51 |
| 2010 | $2.05 |
| 2009 | $1.61 |
| 2008 | -$6.05 |
| 2007 | $2.20 |
| 2006 | $1.77 |
| 2005 | $1.61 |
| 2004 | $1.74 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $3.34 |
| 2013 | $2.69 |
| 2012 | $1.81 |
| 2011 | $1.05 |
| 2010 | $0.31 |
| 2009 | -$0.29 |
Dividend History
WYN Dividend data by YCharts
Conclusion:
Wyndham Worldwide Corporation does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio, short dividend history, lack of sufficient earnings growth or stability over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.31 in 2010 to an estimated $3.34 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 7.60% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return 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.
Disclaimer:  The author did not hold a position in Wyndham Worldwide Corporation (WYN) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
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