Wyndham Worldwide (WYN) has deep value to unlock and if the Parsippany, N.J.-based hospitality company wants to unleash it, they should merge with Choice Hotels Int.'l(CHH) - Get Report , said Wolfe Research analyst Jared Shojaian.
Shojaian said he imagines a scenario where Wyndham and Choice would merge and then simultaneously, Wyndham would spin off its timeshare and timeshare exchange business, leaving its hotel franchise and vacation rental business to combine with Choice.
"Wyndham is my top pick, I like the stock a lot, and I don't believe the market is correctly valuating it," Shojaian told TheStreet.
The proposed merger - which is by no means rumored to be true - would add an estimated 19% of value to Wyndham shareholders, according to Shojaian.
Shojaian added that he does not think Wyndham needs M&A but that it would just work as a "potential catalyst" to add value to the stock.
Wyndham operates through three segments, its hotel group, destination network and vacation ownership. Its hotel brands include Wyndham Hotels and Resorts, Ramada, Days Inn, Super 8 and Howard Johnson.
For Rockville, Md.-based Choice, the franchiser of roughly 7,000 hotels in more than 35 countries, the deal is a no-brainer, Shojaian said.
Shojaian said growth at Choice has stagnated but, if it merges with Wyndham, the company could gain liquidity and investor interest. Choice has received either a "sell" or a "hold" rating from 77% of the analysts who cover it.
Combined, Choice, worth about $3 billion, and Wyndham, worth $6.2 billion, would form a roughly $9 billion company.
Wyndham stock trades at 8.0 times its forecast 2017 earnings before interest, taxes, depreciation and amortization. When the company reports its 2016 fourth quarter results on Feb. 15, it is expected to post earnings of $1.29 a share on $1.33 billion in revenue.
Wyndham retains an "outperform" rating at Wolfe Research.
Shares of Wyndham rose slightly higher by 64 cents, or 0.83%, to $77.79 while shares of Choice were up 15 cents, 0.28%, to $54.45 on Thursday.