On Thursday, JPMorgan (NYSE:JPM) adjusted its price target for Wyndham Hotels (NYSE: WH), reducing it to $89 from $92, while reiterating an Overweight rating on the stock. The firm's analysis indicates that Wyndham's annual target of 3% to 4% net rooms growth is well within reach, with expectations leaning towards the higher end due to a robust pipeline and momentum in international and ECHO development, coupled with strong franchisee retention.
Wyndham's updated second half of 2024 (2H24) Revenue per Available Room (RevPAR) forecast was noted as a conservative measure that manages expectations without significantly impacting EBITDA, thanks to increased non-RevPAR ancillary fees and reduced marketing expenditures. JPMorgan highlighted Wyndham's solid capital return in the second quarter of 2024 (2Q24), suggesting that the share repurchase levels seen during this period could be sustained, barring any small-scale brand acquisitions. This is supported by the company's low debt levels and robust free cash flow.
The firm's full-year projections for 2024 and 2025 have remained largely unchanged post Wyndham's 2Q24 results, with a slight increase for 2024 to $695 million and a minor decrease for 2025 to $730 million. The Overweight rating was reaffirmed, with the expectation that Wyndham's shares will progressively increase based on strong fundamentals. These include the potential for mid-single-digit EBITDA growth, complemented by free cash flow generation and low leverage, which should enhance growth and facilitate increased capital returns to shareholders.
Currently, Wyndham's valuation stands at a relatively modest 11.7 times the 2024 estimated enterprise value to EBITDA (EV/EBITDA) and 10.9 times for 2025, which the firm finds appealing for a franchise model with an attractive net rooms growth rate of around 4%. The new year-end 2025 price target of $89 reflects a slight adjustment due to anticipated higher net debt, and it is based on a multiple of 12.5 times the 2025 estimated EV/EBITDA, which is at the lower end of the range for comparable lodging corporations.
In other recent news, PowerSchool Holdings is set for a major shift as it is acquired by Bain Capital for $5.6 billion, a substantial move that marks a new chapter for the company as it returns to private ownership. On the other hand, Wyndham Hotels & Resorts (NYSE:WH) has been actively making strategic moves. The hotel franchising giant has successfully repriced its Senior Secured Term Loan B Facility, upsizing it to $1.5 billion and securing a lower interest rate, a move anticipated to save approximately $6 million in annual interest expenses.
In addition, Wyndham has appointed Amit Sripathi as its new Chief Development Officer, a strategic move expected to drive the company's growth strategy. The company has also declared a quarterly cash dividend of $0.38 per share, providing direct benefits to its shareholders.
In terms of analyst interactions, Baird has increased Wyndham's price target to $88 from $86, maintaining an 'Outperform' rating on the company's shares. This adjustment follows Wyndham's first-quarter earnings for 2024, which modestly surpassed expectations. These recent developments reflect the ongoing strategic and financial maneuvers of both PowerSchool Holdings and Wyndham Hotels & Resorts.
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