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Vail Resorts Could Use A Profit Lift
Vail Resorts (NYSE:MTN) owns and operates a stable of the most appealing ski and lodging properties in the U.S. This asset base is extremely valuable, and provides the company a defensible business moat that competitors cannot replicate. But at the current share price, investors appear to be overestimating the profit-generating potential of these assets. (To help you determine the true value of a stock, check out Relative Valuation Of Stocks Can Be A Trap.)
TUTORIAL: Earnings Quality
Third Quarter Recap
Total sales rose 18.3% to $414.5 million, as the mountain segment, which accounted for the bulk of revenue at 85% and consists of the company's flagship Breckenridge, Vail, and Keystone ski resorts, saw total mountain net revenue jump 16.3% on higher ski lift sales and the acquisition of a resort in Tahoe. Two smaller divisions consist of a lodging and real estate business that operate hotels and focus on real estate development and sales. Lodging reported an 11% sales increase and made up 12% of sales while real estate saw sales more than triple but only made up about 3% of the total top line.
Operating income increased 17.9% to $139.5 million, as the company was able to keep total cost and expense growth relatively in line with the sales increase. Net income rose only 6% on higher interest expense, while earnings grew a more modest 5.1% to $2.08 per diluted share on higher shares outstanding. (For more on earning and the overall roll it plays with the markets, read Earnings Forecasts: A Primer.)
Outlook
Analysts currently expect Vail to report full year sales growth just north of 30% and total sales of $1.1 billion. The current consensus earnings projection is $1.10 per share, or year-over growth again north of 30%.
Bottom Line
Vail possesses a number of high-caliber properties that are extremely valuable and qualify as unique, one-of-a-kind properties. This is also evidenced by the fact that there are no true publicly-traded peers to Vail, with casino resort firms such as Wynn Resorts (Nasdaq:WYNN), Las Vegas Sands (NYSE:LVS) and MGM (NYSE:MGM) as close as can be found. Gaylord Entertainment (NYSE:GET) is also somewhat comparable, as it owns a number of unique resort properties across the country.
However, its forward earnings valuation is extremely high at nearly 40, and last year capital expenditures exceeded the cash it generated from its operations. Management is optimistic about its cash generating capabilities going forward, and announced its first quarterly dividend of 15 cents per share. On an annual basis, it represents a modest 1.4% dividend yield. There is no question that Vail possesses valuable real estate, but from a profit and cash flow perspective the shares look unreasonably valued. (To determine if the stock is correctly priced, check out PEG Ratio Nails Down Value Stocks.)
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TUTORIAL: Earnings Quality
Third Quarter Recap
Total sales rose 18.3% to $414.5 million, as the mountain segment, which accounted for the bulk of revenue at 85% and consists of the company's flagship Breckenridge, Vail, and Keystone ski resorts, saw total mountain net revenue jump 16.3% on higher ski lift sales and the acquisition of a resort in Tahoe. Two smaller divisions consist of a lodging and real estate business that operate hotels and focus on real estate development and sales. Lodging reported an 11% sales increase and made up 12% of sales while real estate saw sales more than triple but only made up about 3% of the total top line.
Operating income increased 17.9% to $139.5 million, as the company was able to keep total cost and expense growth relatively in line with the sales increase. Net income rose only 6% on higher interest expense, while earnings grew a more modest 5.1% to $2.08 per diluted share on higher shares outstanding. (For more on earning and the overall roll it plays with the markets, read Earnings Forecasts: A Primer.)
Analysts currently expect Vail to report full year sales growth just north of 30% and total sales of $1.1 billion. The current consensus earnings projection is $1.10 per share, or year-over growth again north of 30%.
Bottom Line
Vail possesses a number of high-caliber properties that are extremely valuable and qualify as unique, one-of-a-kind properties. This is also evidenced by the fact that there are no true publicly-traded peers to Vail, with casino resort firms such as Wynn Resorts (Nasdaq:WYNN), Las Vegas Sands (NYSE:LVS) and MGM (NYSE:MGM) as close as can be found. Gaylord Entertainment (NYSE:GET) is also somewhat comparable, as it owns a number of unique resort properties across the country.
However, its forward earnings valuation is extremely high at nearly 40, and last year capital expenditures exceeded the cash it generated from its operations. Management is optimistic about its cash generating capabilities going forward, and announced its first quarterly dividend of 15 cents per share. On an annual basis, it represents a modest 1.4% dividend yield. There is no question that Vail possesses valuable real estate, but from a profit and cash flow perspective the shares look unreasonably valued. (To determine if the stock is correctly priced, check out PEG Ratio Nails Down Value Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
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