The truth of the matter is that just because a stock makesthe “Bear of the Day List” doesn’t mean that it’s a poor company or can’t appreciatein value. More appropriately, they arestocks that are either struggling now or stocks that we believe may struggle inthe near future.
Today’s Bear is Vail ResortsInc. MTN. While it might make sensethat a company with a popular, high dollar ski destination in the name is abearish stock in the middle of the summer, you must keep in mind that Vailoperates facilities year round and seasonal variations are somewhat built intothe share price.
If you’re not familiar with the company, they own and/oroperate land, real estate and high end resorts globally.
Aside from the most profitable part of their business being weatherdependant, you have the seasonal effects as well as aging demographics of theirkey clientele as well as minimal growth in the industry.
There is also increasing competition being pushed onconsumers by the likes of Groupon, Living Social, Travelzoo and more.
Fiscal Q3 Call
On June 6th, the company reported decent earningsof $2.66, but fell 3.6% short of the Zacks Consensus Estimate of $2.76.
On the surface, the numbers looked good:
- Resort Reported EBITDA increased 14.2% to $202.7 million for the third quarter of fiscal 2013 compared to the same period in the prior year.
- Net Income attributable to Vail Resorts, Inc. increased 22.7% to $97.6 million for the third quarter of fiscal 2013, compared to the same period in the prior year.
- Spring season pass sales for the 2013/2014 ski season were up approximately 18% in units and approximately 24% in sales dollars through May 28, 2013 compared with the prior year period ended May 29, 2012.
Following the results, we have seen analysts’ estimates dropover 30% for FY2103 and 25% for FY2014 since the last earnings report.
Stock Still Skiing NearPeaks
Even with the recent correction, shares of MTN are not farfrom their highs and have seemed to defy the downgrades by analysts. The current share price puts MTN at 64 timesforward earnings even after analysts have brought down their estimates andtargets.
Vail Resorts is expected to see a small decline in revenue forthe year, but is expected to squeeze a 24% increase in earnings from thatdecline. This might be hard to do ifweather and the economy don’t cooperate just perfectly (and they usually don’t).
While the company may not be in immediate trouble and couldvery well bounce back in the future; the current state of the economy, summerslow season and outrageous valuations could spark a small avalanche for thestock in the near term. Vail Resorts reports earnings on September 24th.
If you’re looking for a resort stock with a slightly moreconservative valuation, you might want to check out Zacks Rank #1 Six Flags Entertainment group SIX. Their multiple is lower and we are currently intheir peak season. Earnings for SixFlags are due out on July 22nd.
JaredA Levy is one of the most highly sought after traders in the world and a formermember of three major stock exchanges. That is why you will frequently see himappear on Fox Business, CNBC and Bloomberg providing his timely insights toother investors. He has written and published two tomes, “YourOptions Handbook” and “TheBloomberg Visual Guide to Options”. You can discover more of hisinsights and recommendations through his two portfolio recommendation services:
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