Why it was purchased: Wyndham Worldwide (WH, Financial) was a successful long-term moderate investment in the portfolio. On June 1, 2018, after spinning off Wyndham, Hotels & Resorts, Wyndham Worldwide changed its name to Wyndham Destinations. It is one of the world’s largest vacation ownership and exchange company. Under a new CEO, the company had the potential to introduce many enhancements that would lead the market to see it as a “subscription” vacation business with consistent and abundant free cash flow.
Why it has not worked this year: The stock traded down after the spin date, primarily due to concerns over the increases in loan default rates related to timeshare-exit companies.
Why it was still in the portfolio: We believed that the business was profoundly misunderstood and that, as the company continued to exhibit moderate earnings, free cash flow and sales growth, investors would appreciate its low churn and capital-light business model. Furthermore, at quarter end, Wyndham Destinations had a 4.5% dividend yield and authorization to buy back close to 30% of its shares.
From First Eagle Investment (Trades, Portfolio)'s First Eagle Fund of America's third-quarter 2018 shareholder commentary.
