Wyndam Worldwide Corporation (WYN) has recalibrated its timeshare business and turned around its free cash flow by approximately $1 billion, and is now generating up to $900 million free cash flow with a current yield close to 10%, which is the highest in the sector, says Simon Yarmak, CFA, Vice President at Stifel, Nicolaus & Co., Inc.
“Wyndham has a diversified business model. Almost half of their EBITDA comes from the timeshare business, about 23% comes from their hotel platform, and the remaining approximately 29% is derived coming from vacation rental and timeshare exchange platform. The big issue with Wyndham last cycle was that the company had too much timeshare inventory on their balance sheet, and they were spending too much money on developing timeshare,” Yarmak said.
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This cycle Wyndham has been able to transition its timeshare business to a more asset-like model, which has enabled the company to turn around free cash flow and deliver a significant amount back to investors, Yarmak says.
“[Wyndham is] now generating $800 million to $900 million of free cash flow this year, which is over $6 a share or at today’s prices. That’s a 9% to 10% free cash flow yield, and I’m unaware of any other real estate company that has a free cash flow yield in that range. Free cash flow will continue for the foreseeable future. Like Starwood (HOT), most of that would be returned to shareholders in the form of dividends and share buybacks,” Yarmak said.
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