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Can Solid Revenues Drive Wyndham's (WYN) Q1 Earnings?

Wyndham Worldwide Corporation WYN is set to report first-quarter 2016 results on Apr 26, before the opening bell.

Last quarter, the company posted a negative earnings surprise of 1.01%. However, it has surpassed earnings estimates in three of the trailing four quarters, with an average surprise of 4.40%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Wyndham’s quarterly revenues have topped the consensus mark for the past four quarters. The upside reflects the company’s efforts and initiatives to boost traffic. The company deploys a variety of marketing strategies, including online advertising, social media marketing, sponsorships and highly targeted direct marketing. It is also looking to drive growth on the back of its revised loyalty program.

Meanwhile, through collaborations with leading technology companies like Infor, Sabre and others, the company is in a position to quickly deploy and upgrade revenue generation and property management solutions. These efforts should keep driving revenues in the to-be-reported quarter.

Moreover, the company expects increased pricing power, thanks to limited supply and strong demand in the hotel industry, which should improve its RevPAR. Wyndham also derives a substantial chunk of its revenues from its vacation ownership or timeshare business. This fee-for-service-based business model is expected to continue boosting earnings in the first quarter.

However, Wyndham’s vast presence worldwide makes it vulnerable to changes in the economic conditions of various geographies. Despite immense growth potential, a sluggish economy in Brazil, uncertainty in Africa, macroeconomic factors in Venezuela, and government austerity and the ensuing slowdown in China would continue to dampen Wyndham’s revenues. Further, security issues might hurt demand in Paris, Brussels and, to a certain extent, in London.

The company also has a significant number of vacation rental properties across Europe, where the macroeconomic environment has been sluggish of late.  Also, its business in Europe continues to be clouded by geopolitical issues. This would negatively impact the company’s revenues in the upcoming quarter.

Moreover, currency headwinds due to the strengthening U.S. dollar, which is reducing the value of overseas sales, could mar revenues and profits in the to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Wyndham is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The company’s Earnings ESP stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.11.  

Zacks Rank: Wyndham’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the broader consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Boyd Gaming Corporation BYD, with an Earnings ESP of +36.00% and a Zacks Rank #1.

Six Flags Entertainment Corporation SIX, with an Earnings ESP of +7.81% and a Zacks Rank #1.

Royal Caribbean Cruises Ltd. RCL, with an Earnings ESP of +6.45% and a Zacks Rank #2.

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