Vail Resorts: Big Mountains, Big Plans

| About: Vail Resorts, (MTN)

Vail Resorts, Inc. (NYSE:MTN) knows the ski business is all downhill. North America's #2 ski resort operator (behind Canada's Intrawest), Vail Resorts operates four mountain resorts in Colorado (Beaver Creek, Breckenridge Mountain Resort, Keystone Resort, and Vail Mountain) and one in Lake Tahoe on the California/Nevada border (Heavenly Mountain Resort). The firm also owns or manages more than 20 hotel resorts with about 4,100 hotel and condominium rooms in five states, and operates six resort golf courses. Private label cereal maker Ralcorp Holdings owns about 20% of Vail Resorts.

Ever go skiing? If so, you know how much lift tickets cost, at least in the past. They're going up again. That isn't news. Lift tickets have been going up almost every year there's been a lift operating. Here's your chance to invest in one company on the receiving end of those sales.

Investors might think that Vail's success is written on the wind, in particular, the wind that blows snow to its resorts. That used to be the case. But now two factors have blown that thinking away: first is the addition of enough snow making machines to guarantee skiers good runs. Second is the diversity of revenues Vail Resorts has. While the last and first quarters of the fiscal year (ends in July) are always negative due to seasonality of receipts, the middle two quarters continue to climb.

Earnings per share for 2004 were 90 cents, in 2005, 78 cents. In 2006, they jumped to $1.14. Analysts are looking for $1.63 this year and $2.45 next year. One of the reasons: lift ticket prices were boosted and are going up this year again. The real estate division is also contributing strongly to profits as it is now the fastest growing division. Sales of land parcels in Red Sky Ranch and Breckenridge were good last year. This year may be another story as second home financing may be much more difficult with credit tightening throughout the mortgage world.

Pre-season sales of season passes for the company's mountains are going very well, meaning that 2008 should be another good year. Sales are up 54% from last year with high renewal rates and an 11% increase in the price of the pass.

Vail Resorts works from the ski runs out, first focusing on the quality of the skiing, then developing the area around the base for residential property, lodges and second homes. Any time skiers can drive up, park the SUV, and just enjoy the mountain for two or three days instead of driving to and from the lifts in the morning and the evening, they will come. Of course, having all the dining and apres ski within walking distance makes it even better, both for skiers and Vail Resorts.

Vail's newest project is Ever Vail, a $1 billion development scheduled for completion in 2009-2010. There's also development projects of Peak 7 and Peak 8 which ought to contribute to operations in 2009. More projects are underway at Keystone, Co. (Grand Lodge Hotel and River Run Village) as well as Heavenly Resorts, on the California/Nevada border. Each of these properties will make a difference to profits within 2 or 3 years.

So what's not to like? Valuations are fairly high right now with a P/E ratio of 23. The stock has been going up nicely over the last 4 years, starting at a low of $10.20 in 2003 and recently hitting an all-time high of $65. Investors have heard the story and believe. Of course, management has delivered the goods as far as earnings go, so it's no suprise the stock has done well.

Some numbers to ponder: Return on Equity was 5.2% in 2005, 7.1% in 2006. Analysts are looking for 8.5% this year and 11.5% next year. Net profit margin has climbed from 3.5% in 2005 to this year's expected 6.9%, followed by 8.9% next year, if the analysts are right. Current assets are almost twice current liabilities. Earnings are predicted to grow by 22.5% a year, on average, over the next 5 years, while sales should climb by 7% a year, on average.

Check out this stock if you have an interest in the Hotel industry. It's not quite a pure play. It has the added benefit of all those lift tickets and real estate sales whenever rooms are running a little empty.

Disclosure: none