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Can Wyndham’s Profitability Improve in 2017?

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Analysts’ earnings estimates

After Wyndham Worldwide’s (WYN) fall in 1Q17, Wall Street analysts expect it to clock EBITDA (earnings before interest, tax, depreciation, and amortization) of 2.4% year-over-year (or YoY) to $349.3 million.

This growth is expected to improve throughout the rest of the year. In 3Q17, Wyndham’s EBITDA is expected to rise 7.0% YoY to $452.7 million, and in 4Q17, its EBITDA is expected to rise 8.2% YoY to $340.7 million.

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Though revenue growth will be Wyndham’s major driver, margin expansion will also be an earnings driver for the company. In 2Q17, Wyndham’s EBITDA margin is expected to contract to 23.8%, compared to 24.3% in 2Q16. Its 3Q17 margin is expected to expand to 27.0% from 26.9% in 3Q16, and its 4Q17 margin is expected to expand to 24.3% from 23.9% in 4Q16.

For 2017, Wyndham’s EBITDA margin is expected to remain flat at 24.2%, leading to EBITDA growth of 4.1% YoY to $1.4 billion.

Outlook

Wyndham’s management has set a long-term EBITDA growth target of 6%–8%. According to management, the hospitality industry is going through a cyclical downturn, so Wyndham may find it difficult to show revenue-led EBITDA growth.

Management also expects Wyndham to clock EPS (earnings per share) of $5.98–$6.18. Again, analysts expect the company to achieve the higher end of this guidance.

Investors can gain exposure to the hotel sector by investing in the First Trust Consumer Discretionary AlphaDEX ETF (FXD), which invests ~15% in the hotel, restaurants, and leisure sector, including 1.1% in Wyndham, 0.87% in Hyatt (H), 0.9% in Hilton Worldwide Holdings (HLT), and 1.2% in Marriott International (MAR).

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