Vail Resorts: Another Rapid-Return, And There Is More To Go

Summary

• This stock was our "contrarian idea" contest pick a few weeks ago and shares are up about 25% since then.
• Q1 earnings are always packed with losses.
• Season pass sales are promising.
• Projections for strong investments in the properties and EBITDA growth suggests the stock still has momentum.
• We're currently running a sale at my private investing ideas service, BAD BEAT Investing, where members get access to portfolios, market alerts, real-time chat, and more. Learn More »

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Vail Resorts, Inc. (NYSE:MTN) stock just put out a mixed quarterly report. We called this stock a strong contrarian buy at $205 a few months ago, and now shares have moved up 25%. Winning trade, congrats to all our traders who followed. But is there more upside? We think there is, though the mixed results suggest waiting for a slight pullback, but there should be upside given the trends in season pass holders, and the fact that despite the Fed wanting to tank the economy, it is still strong. While there may be a slight recession looming, Vail Resorts has excellent management, has invested in its future, and is seeing revenues shooting higher. We think it is a buy.

Entering the busy season

Winter is of course the busy season here for the company. If the country gets some arctic blasts of fresh powdery snow, it will be a great thing as these snowy conditions bode well for Vail. Historically, the better the winter season, the stronger the company does. So keep that in mind. Of course, Q1 is always weak ahead of the strong fiscal Q2 and Q3. What do we mean? Well, the company loses money every single Q1. Let's talk some financials. The top line was pretty strong, coming in at $279.5 million. Revenue growth was strong, rising 59.2% from last year. But Q1 is always volatile.

While this revenue is still solid, we know net income was a loss, as is typical in Q1, though it was a bit more than anticipated. Net loss was $137 million, compared to losses of $139.3 million a year ago. That is bad right?

Well, yes, on the surface that is pain for the quarter, but it was not all bad news. Reported EBITDA loss was $96.5 million. While that is a lot, it was an improvement from last year when EBITDA loss was $108.4 million. So it was mixed. We think this was positive though. Yes, Q1 is usually tough to predict.

Much of the losses have been driven by the company continuing to make acquisitions and investments into its resorts, which suggests the future is promising. However, do not read into too much into the top and bottom line for Q1, as all of the money is really made in the next two quarters, and we expect growth. Although Q1's financials look daunting, some of the critical metrics suggest a nice fundamental based bounce is coming.

Keep these issues in mind for Vail Resorts

We love to see the trends in season passholders, and trends in their activities/spending/visitation habits. Season passholders represent the highest-valued customers for Vail, so we think it important to look at them closely. Why so valuable? Season passholders visit multiple times a year, may stay in lodging, and can drive food and beverage sales higher. As such, investors must pay close attention to passholder trends.

We also are highly encouraged by the company's season-to-date season pass sales through December 5, 2022. Season pass sales for the upcoming North American ski season increased approximately 6% in total units and 6% actual in sales dollars compared with the prior-year period.

Remember since last year, the company also made another acquisition of the Seven Springs Resorts. This includes Seven Springs, Hidden Valley and Laurel Mountain resorts. Vail has been a serial acquirer of resorts. We love it, including the recent push to get into Switzerland. The Australian resorts are also performing well. We know these acquisitions will have a major impact going forward, and we expect a stellar season this winter. This was noted by CEO Kirsten Lynch:

Our first fiscal quarter historically operates at a loss, given that our North American and European mountain resorts are generally not open for ski season operations during the period. The quarter's results are primarily driven by winter operating results from our Australian resorts and our North American resorts' summer activities, dining, retail/rental and lodging operations, and administrative expenses. We are pleased with our results for the quarter, with Resort Reported EBITDA improving compared to the prior year period primarily driven by the strong demand and visitation at our Australian resorts. Our Australian resorts continued to experience record visitation, driven by strong demand following two years of COVID-19 related disruptions and supported by continued momentum in advance commitment pass product sales following the addition of Hotham and Falls Creek in April 2019.

This suggests revenues will be higher in Q2 than expected. In addition, sales of season passes remain strong, and so we expect a strong bounce in performance.

What we expect to see for EBITDA

No doubt this was a rough start to the year, but this was expected. Q1 is always horrible. Every year, they lose money. But pass sales are up nicely and have really caught on in North America the last few years. Now, as mentioned, reported EBITDA loss was $96.5 million for the first fiscal quarter of 2023. However, we have strong expectations. We are looking for total fiscal 2023 EBITDA of $900-$930 million for the year. Much of this will be driven by new acquisition activity as we look to eclipse last year's total. We are expecting growth of over 10% overall on this metric. We expect EBITDA to be driven by strong revenues in lodging and improving margins in the food and beverage sales, though labor costs are a sticking point. All of the performance follows big investments made for the future.

Investing in the future

Our outlook of EBITDA and the bottom line as a whole remains strong given that the company will continue to invest itself. Not only is there organic growth, but the company is also expanding its operational footprint. The company has operations in North America as we know but also has 3 resorts in Australia. On top of that, Vail closed on its purchase of a majority stake in Andermatt-Sedrun in late summer. This is the first chance for Vail to operate a ski resort in Europe. This location is less than 90 minutes from three of Switzerland's major cities. It close to Italy as well. This adds a whole new source of income. The company is also investing to upgrade lifts, lodges, and its technology infrastructure. While the capex spending can weigh short-term, this will pay off in the future.

Our recommendation

So, what should you do? We think the stock is still a buy under $250. It is not as good as when it was at $205 and our traders made the easy money, but we think the stock can push to $300 in 2023, particularly as we expect a strong H2 2023 for markets. Given the outlook, we think you can enter, as the 10% growth in the EBITDA metric. Most COVID issues are gone, but they could be a risk if governments get back on that bandwagon. We believe that long-term investors may want to accumulate on dips, since we have no reason to believe the long-term story is not intact. Short-term traders can look to swoop in on any dip and look to sell in the $260 range. We still like the dividend now that is back to growing, which currently yields over 2.3%. We think it grows each year.

Disclosure: I/we have a beneficial long position in the shares of MTN either through stock ownership, options, or other derivatives. 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.