Deutsche Bank Comments On Wyndham Worldwide Following Investor Meetings

Deutsche Bank recently hosted Wyndham Worldwide's WYN sr. mgt + WVO execs for a well-attended investor meeting that drilled down extensively into the timeshare unit. DB came away with the sense that investors should have incremental conviction in the sustainability of WYN's timeshare cash flow beyond 2014, without returning anywhere close to the cap-ex levels of '05-'08. Pre-tax ROIC could reach ~22% in '14, vs. ~10% in '09, driven by a host of factors; inventory should fall by $500m. ABS market strength fuels optionality. Since the downturn, WYN has eliminated tour programs aimed at customers w/ FICO scores <600; the avg. score for originations is now 697, and buyers who finance now have an avg. of 34% equity in the investment, up from 20% in '05, reducing the odds of default. Given incrementally favorable conditions in the ABS market, WYN is exploring the possibility of carving out a financing arm within the asset-light WAAM commission model. The pipeline of potential WAAM deals is vast & continues to widen. WYN can thus cherry pick the best projects, and mgt left open the possibility that WAAM could ultimately be a meaningfully higher portion of overall timeshare EBITDA than the 15-20% initially suggested. Deutsche Bank has a $38 PT and Buy rating on WYN WYN closed Tuesday at $30.46