Vail Resorts: Analysts Expect Earnings Could Climb Higher. The Stock Could Too
Summary
- Analysts expect Vail Resorts' earnings to increase for fiscal year 2022.
- A dividend reinstatement could occur in the future.
- The company is looking at high return capital projects and potential acquisitions.
Vail Resorts, Inc. (NYSE:MTN) is a mountain resort company and a leader in luxury destination-based travel. The company operates 37 destination mountain resorts and regional ski areas with operations in the United States, Canada, and Australia. Vail Resorts also owns and/or manages casually elegant hotels and develops real estate.
Vail Resorts stock has been a big winner rising from around $17 in 2000 to $305.2 on July 30, 2021. With earnings expected to increase in Vail Resorts' future, there's likely more upside.
Earnings
Vail Resorts stock looks expensive based on past earnings.
For the fiscal year ended July 31, 2020, net income attributable to Vail Resorts, Inc. was $2.42 per diluted share. The annual EPS estimate for the period ending July 2021 isn't much better at $3.21.
With a stock price of $305.2 on July 30, Vail Resorts would trade at a price to estimated fiscal 2021 earnings per share ratio of almost 100 assuming the company meets earnings estimates.
Future earnings estimates, however, make the stock more attractive.
Due to the pandemic, Vail Resorts closed early for the 2019-2020 North American ski season and the full 2020-2021 North American ski season has also been affected.
With various tailwinds, however, analysts expect earnings per share for the company to increase substantially with the annual EPS estimate for the fiscal period ending July 2022 being $7.97.
The numbers look achievable given that the company reported diluted net income per share attributable to Vail Resorts, Inc. of $7.32 in fiscal 2019 and $9.13 in fiscal 2018.
Given the fiscal 2018 earnings per share, Vail Resorts' normalized earnings power per share is probably closer to $9-$10 than it is to $2.42-$3.21. Based on the normalized earnings power estimate, Vail Resorts' valuation doesn't look expensive. The stock instead looks attractive given the growth opportunities and tailwinds. Although the stock could fall substantially just like it did during 2008 and 2020 if there is a recession or another pandemic, Vail Resorts could have more upside in the long run.
Tailwinds
Vail Resorts has tailwinds. The U.S. economy is strengthening due to fiscal stimulus and supportive monetary policy.
Air travel is continuing its recovery process. With more air travel, more customers could visit Vail Resorts and increase its business.
The company is leveraging machine learning and expanding its data-driven capabilities to optimize lifetime guest value.
Vail Resorts also has substantial excess capital to allocate given it's profitable and it hasn't paid any dividends since it suspended the payout in April last year. If the excess capital is invested wisely, the company could grow even faster. Since 2012, the company has acquired 31 ski areas across the United States, Canada, and Australia and there could be more acquisitions in the future. Vail Resorts has wanted to expand internationally in the long run and it could use the excess capital and M&A to do so if there's the right opportunity.
If Vail Resorts pays a dividend again, sentiment around the stock could improve.
Insider Monkey Holdings
For the filing period ended March 31, 2021, Robert Joseph Caruso's Select Equity Group was by far the largest holder among the funds we track with 1,334,625 shares. On March 31, 2021, Select Equity Group's position was worth more than $389.2 million and accounted for 1.41% of the fund's 13F equity portfolio. Although Select Equity Group held a lot of shares, the fund also cut its holdings by 25% from the filing period before.
In terms of other notable movements for the filing period ended March 31, quant fund D E Shaw increased its holdings by 1029% from the filing period before to 287,229 shares.
Climate Change
As a ski resort operator, Vail Resorts depends on the snowfall for the snow season every year. If the weather gets warmer due to climate change, the snow season could be shorter and Vail Resorts' revenues could be adversely affected. Without enough snow, it's not possible to offer skiing. Without skiing, there won't be as many visitors. In the United States, snow season typically occurs from late November to early April.
Given its strong stock performance since 2000, Vail Resorts has adjusted successfully to climate change. The company has created its own snow and it is also offering a season lift pass that has to be purchased before a ski season to protect against warmer winters.
Vail Resorts has also bought properties in different geographies such as Vermont and Australia that could hedge against weather variability.
Risks
The pandemic has affected Vail Resorts in the past. It could affect Vail Resorts in the future. Although many expected the pandemic to end around July 2021 in the United States, the Delta variant has delayed the pandemic's end. If variants become a bigger problem, Vail Resorts' future financial results might not be what the market expects and that could send the stock lower. If the economy weakens, Vail Resorts' financial results could weaken as well.
Vail Resorts' future acquisitions might not produce the financial results that management expects.
A shorter snow season due to weather variability could adversely affect the company.
Future
Vail Resorts generally serves a more upscale client base who have more discretionary income. A client base with more income can afford to go elsewhere given travel costs don't make up a large part of discretionary income. The fact that Vail Resorts has grown earnings per share over time shows that it is a leader and its offering is very competitive. Although Vail Resorts has competition, the company has a great brand and offers a great experience that's hard to match. With the brand and the good experience, Vail Resorts has a moat and momentum.
In addition to organic growth in its existing resorts, the company has more potential momentum in the future.
Vail Resorts is confident in strong cash flow generation given the industry and company trends. The company's ski school and rental business are also large high-margin businesses with growth potential.
The growth of season passes could also increase the stock price as Vail Resorts' management believes the season passes could increase the lifetime value of customers to the company. More and more of Vail Resorts' customers are buying season passes and many customers who buy season passes renew. Pass revenue has increased at a 17.8% CAGR from FY2008 to FY2021 where it was $653 million. Not only do the season passes increase predictability but they also offer potential upselling opportunities.
Although there will be substantial declines, Vail Resorts stock could climb substantially higher in the long run.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
This article is written by our analyst, Jay Smith. Insider Monkey doesn't recommend any positions in MTN in its premium newsletters.
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