Ladies and gentlemen, pull out the skies and get to the powder because Vail Resorts (MTN, Financial) is under our microscope today. In the throes of winter and subzero American temperatures, it seems only appropriate that this exciting resort company be our first stock discussion of 2018.
The name Vail connotes luxury and sophistication, and is home to some of the world’s finest ski resorts. Vail Resorts owns and operates four ski resorts in the state of Colorado (including Vail itself), three in Lake Tahoe, one in Utah, one in Vancouver and a summertime resort in Wyoming. With 10 resorts in its portfolio, Vail Resorts has extensive holdings across the Western resort region and significant upside for the future.
Vail does it better
Not only are there strong seasonal reasons to consider adding Vail Resorts to your portfolio, but the company also boasts one of the finest portfolios of resorts in the game. In the last five years, investors have seen investment returns of more than 300%.
In recent years, Vail Resorts has expanded upon its namesake resort in Vail and others in Breckenridge, with acquisitions in Utah, in Whistler, Canada, where it purchased the world’s largest ski resort, and even a summer getaway in the hills of Wyoming. These attractive and diverse offerings have positioned the company well to take advantage of 2018’s strong projected vacation market and expanding vacation market more generally.
Financial strength
One major way in which Vail Resorts has positioned itself to compete in the modern destination resort market is through acquisition of other resorts. Not only can it boast a wide-ranging diversity of locales, but it allows the company to build strong relationships across the West with local communities, many of which will buy pass options that include year-round passes. These customers tend to show up more often, give more loyalty to their local resorts, and purchase more items from drinks, to food, to day-of rentals. That advantage has become clear in the company’s financials.
So far, the 2017-2018 snow/ski season is looking strong. In 2017 alone, season-pass sales were up almost 20% and Vail Resorts has indicated it expects a strong financial output on the year, with projected net income of as much as $300 million. That would be a strong end to a year that has been a bit mixed. Over the past four quarters, the company beat earnings in the first two, only to miss marginally in the next two.
However, the financial outlook for the coming season looks to be strong. Despite a few recent misses on earnings, Vail Resorts has delivered consistently strong EBITDA performance over the last five years. Dividends have also been growing rapidly over the past few years and look set to increase, especially given increased net income and liquidity.
Things to worry about
Vail Resorts is far from a slam dunk, and investors should have a few considerations in mind when considering an investment. First and foremost is the company’s susceptibility to broader economic swings. Vacations, destination vacations especially, tend to get cut off when the economy turns sour.
Currently things look pretty good, with solid macroeconomic growth and a tightening labor market, but that picture can easily change. We can already see some worrying signs of capital market overheat, and if that were to spill over into a broader economic correction, Vail Resorts would take a hit in the short-run.
Competitions is also increasing fiercely, including from other resorts chains like the Crown Family and its aggressive long-term acquisition program. Barring something major, however, we expect Vail Resorts appears well positioned to compete in the field strongly.
Verdict
Vail Resorts presents a compelling case, with strong growth, solid strategy, diversification and competitive advantages. But it is fundamentally a bull market investment and investors should be wary of exposure in the event of a downturn.
Disclosure: I/We own none of the stocks mentioned in this article.
