Wyndham (WH) Moves to Strong Buy: Rationale Behind the Upgrade
Wyndham Hotels (WH) appears an attractive pick, as it has been recently upgraded to a Zacks Rank #1 (Strong Buy). An upward trend in earnings estimates -- one of the most powerful forces impacting stock prices -- has triggered this rating change.
The sole determinant of the Zacks rating is a company's changing earnings picture. The Zacks Consensus Estimate -- the consensus of EPS estimates from the sell-side analysts covering the stock -- for the current and following years is tracked by the system.
Since a changing earnings picture is a powerful factor influencing near-term stock price movements, the Zacks rating system is very useful for individual investors. They may find it difficult to make decisions based on rating upgrades by Wall Street analysts, as these are mostly driven by subjective factors that are hard to see and measure in real time.
Therefore, the Zacks rating upgrade for Wyndham basically reflects positivity about its earnings outlook that could translate into buying pressure and an increase in its stock price.
Most Powerful Force Impacting Stock Prices
The change in a company's future earnings potential, as reflected in earnings estimate revisions, has proven to be strongly correlated with the near-term price movement of its stock. That's partly because of the influence of institutional investors that use earnings and earnings estimates for calculating the fair value of a company's shares. An increase or decrease in earnings estimates in their valuation models simply results in higher or lower fair value for a stock, and institutional investors typically buy or sell it. Their bulk investment action then leads to price movement for the stock.
For Wyndham, rising earnings estimates and the consequent rating upgrade fundamentally mean an improvement in the company's underlying business. And investors' appreciation of this improving business trend should push the stock higher.
Harnessing the Power of Earnings Estimate Revisions
Empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock movements, so it could be truly rewarding if such revisions are tracked for making an investment decision. Here is where the tried-and-tested Zacks Rank stock-rating system plays an important role, as it effectively harnesses the power of earnings estimate revisions.
The Zacks Rank stock-rating system, which uses four factors related to earnings estimates to classify stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record, with Zacks Rank #1 stocks generating an average annual return of +25% since 1988. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here >>>>.
Earnings Estimate Revisions for Wyndham
For the fiscal year ending December 2022, this hotel and resort chain is expected to earn $3.87 per share, which is a change of 22.5% from the year-ago reported number.
Analysts have been steadily raising their estimates for Wyndham. Over the past three months, the Zacks Consensus Estimate for the company has increased 6.3%.
Unlike the overly optimistic Wall Street analysts whose rating systems tend to be weighted toward favorable recommendations, the Zacks rating system maintains an equal proportion of 'buy' and 'sell' ratings for its entire universe of more than 4000 stocks at any point in time. Irrespective of market conditions, only the top 5% of the Zacks-covered stocks get a 'Strong Buy' rating and the next 15% get a 'Buy' rating. So, the placement of a stock in the top 20% of the Zacks-covered stocks indicates its superior earnings estimate revision feature, making it a solid candidate for producing market-beating returns in the near term.
You can learn more about the Zacks Rank here >>>
The upgrade of Wyndham to a Zacks Rank #1 positions it in the top 5% of the Zacks-covered stocks in terms of estimate revisions, implying that the stock might move higher in the near term.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Wyndham Hotels & Resorts (WH) : Free Stock Analysis Report
To read this article on Zacks.com click here.