Vail Mountain Resorts: Consider This Powerhouse Growth And Income Name

| About: Vail Resorts, (MTN)


Vail is one of my top picks in the vacation/entertainment sector.

The stock is up 40% in a year and I see it moving higher.

Fiscal Q3 results are out and they strongly demonstrate the growth the company is displaying.

Vail Resorts Inc. (NYSE:MTN) is a well-known operator of mountain and lodging resorts in the United States, and one of my top picks in the vacation/entertainment sector. What you may not know is that its stock was up 40% since I called for a buy in spring 2015. In my opinion, the stock could climb higher, but wait for a pullback. The company is becoming a powerhouse stock to own as the macroeconomic environment continues to improve, and with it so does the company's performance. Perhaps the greatest gift to the company is lower fuel prices, which immediately puts money into the hands of consumers to be able to take vacations to its lodges. The fact is that nearly all segments of the company have seen improvement and this is supported by this morning's just-announced earnings.

Let me be clear. The company delivered a decent fiscal Q3. It missed slightly on the top but beat on the bottom line. Of course, this is a seasonally stronger period for the company, so it did have very strong earnings and exceeded what I had expected. The company's most recent quarter showed earnings (EBITDA) improved 15% for Q3 2016 compared to Q3 2015. Net income was $157.6 million, rising 18.2% from last year on a GAAP basis. On an adjusted basis, net income increased to $4.23 per share surpassing estimates by $0.03. Total revenues were $647 million, improving 12% year-over-year but missing estimates by $5 million.

What you need to realize here is that revenues for this quarter are driven by the resort's full suite of activities including skiing, sledding, dining, retail/rental and lodging operations. Despite running into late spring, these activities are often ongoing for much, if not the entire quarter. And from the results, it appears the company had incredible visitation. This led to increases in all of the company's key lines of business bolstered by the investments it has made in new summer activities. The mountain segment's net revenue increased 14.5% to $572 million versus last year's $499 million. Lodging segment revenue increased $5.7 million, or 8.2% versus last year, and came in at $72.9 million. The only "underperformer," if you will, was the real estate segment. Results were down to $1.7 million versus $12.4 million. There's a reason for this. It is because in the first fiscal quarter he company closed on sales of two units at Ritz-Carlton Residences Vail and two units at One Ski Hill Place as well as the sale of some land. Rob Katz, Chief Executive Officer stated the following regarding the quarter:

"We are very pleased with our performance in the quarter and for the entirety of the 2015/2016 U.S. ski season. Our results continued to demonstrate the strength of our season pass products, the momentum we have created by drawing destination guests to our resorts through more sophisticated marketing efforts and the benefit from good conditions throughout the season in each of our western resort areas. Mountain revenue increased 14.7% compared to the same period in the prior year, with lift revenue growing 17.4%, driven by strong season pass revenue and an increase in effective ticket price ("ETP") excluding season pass of 8.2%. Guest spending was strong across the business in the third quarter with ski school revenue increasing 12.2% and dining revenue increasing 15.9% compared to the same period in the prior year. Our first season operating the new Park City resort proved to be a success, and results were in line with our ambitious expectations for what is now the largest ski resort in the U.S. In addition, our Tahoe resorts benefited from dramatically better conditions throughout the ski season and achieved record revenue levels in all key business lines. Our Colorado resorts continued to deliver outstanding results, with growth in visitation and revenue above our record prior year. We did experience a modest decline in total international visitation compared to the prior year, however, we did see strong growth from Australia, reflecting the benefit of our recent Perisher acquisition and the introduction of a season pass which provides access to Perisher and our U.S. resorts, called the Epic Australia Pass.

This season highlighted the importance and success of our more sophisticated marketing efforts. We continued to see strong growth in our season pass program with season pass revenue increasing 18.9% year-to-date through the third fiscal quarter, excluding Perisher, compared to the prior year period, and represented approximately 41% of our total lift revenue. Our growth in season pass sales was primarily driven from increased sales to our destination guests who increasingly appreciate our network of resorts and the compelling value proposition our season pass products offer for their ski vacations, while also benefiting from our improved ability to segment our guests and personalize our messages to them. We are also driving our guests' purchases through our own online distribution channels, providing our guests with the confidence that they are getting the best value and ensuring we maintain a strong relationship with them."

What I think is most important to note is that the company has seen a spike in season pass sales, with sales up 29% versus a year ago volume wise and up 34% revenue wise. That is impressive. The company's balance sheet remains incredibly strong. It ended the quarter with $68.6 million of cash, up $23 million from last quarter. The quarterly dividend has also been raised dramatically since this time last year. It is now $0.81, up from $0.6225 per share last year, and up from the $0.4150 per share of common stock two years ago. Further, the company is buying back stock. The quarter was strong and so the company increased its guidance for the year. Reported EBITDA for fiscal 2016 was expected to between $4478 million and $454 million, up strongly from the guidance of between $405 million and $430 million last quarter. Further, the company anticipates buying back more shares and continuing to pay the recently hiked dividend. The company is a now both a growth stock and income stock. I'd be a buyer for both aspects. It's a nice stock to have in the entertainment section of your portfolio for both dividends and growth.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.