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Stock Strategist

Wyndham's Brand Advantage Intact

It's enhancing long-term growth prospects in an increasingly uncertain macro environment.

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We expect  Wyndham Hotels & Resorts (WH) to gradually expand its room share in the hotel industry and sustain a brand intangible asset and switching cost advantage. This view is supported by the company’s roughly 40% share of all U.S. economy and midscale branded hotels as well as its loyalty program, the industry’s fourth-largest by membership, which encourages third-party hotel owners to join the platform. Also, Wyndham has 10% and 5% shares of existing U.S. and global hotel rooms, respectively, with a pipeline that represents around 22% of its current unit base. As a result, we see room growth averaging around 3% over the next decade, above the 2% long-term U.S. supply growth average.

With all but 2 of its 9,000-plus hotels managed or franchised, Wyndham has an attractive recurring-fee business model with healthy returns on invested capital, as these asset-light relationships have low fixed costs and capital requirements. This asset-light model creates switching costs, given the 10- to 20-year contracts that have meaningful cancellation costs for owners.

Dan Wasiolek does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.