Vail Resorts, Inc. MTN: 2009 Analyst Day Takeaways; Lowering Ests Lowered '09 EBITDA Outlook Midpoint Above Cons. • MOUNTAIN/LODGING BUSINESS. The introduction of the Epic Pass has certainly driven incremental visitation during a period when destination, non-pass visitation has declined rather significantly. Pass revenue is expected to account for ~34% of lift ticket revenue this ski season, up from 26%. The increase in pass revenue as a % of lift ticket revenue is important in this environment as it adds a degree of security to this revenue stream. Visitation during peak periods has been better than expected while visitation during off-peak periods has been surprisingly constant, according to mgmt. The lodging booking window has shrunken significantly this year, with bookings within two weeks of travel up 20%.
• REAL ESTATE. The Ritz-Carlton Residences and One Ski Hill Place are the only real estate developments that MTN has under construction, and it does not expect to move forward on sales/construction of its pipeline until there is an improvement in the residential market.
• Q2 SUMMARY. Vail reported Q2 09 EPS of $1.65, $0.37 above consensus. Revenues were 6.5% above consensus and EBITDA was 17% above excluding one extra Saturday in Q2, visitation was down 4.5%, lift revenue was down 7.5%, ski school was down 20%, and dining/retail/rental were down 14-15.5%. Through 3/1/09, skier visits declined 5.1%, up from the (5.8%) reported through 1/4/09 and lift ticket revenue declined 8.0%, down from (7.5%).
• LOWERING ESTIMATES. We are lowering our 2009 EPS estimate to $1.19, from $1.29 and our 2010 estimate to $0.19, from $0.73. Our EBITDA estimates are $208.4MM and $148.5MM, respectively.
• MAINTAINING OUTPERFORM RATING. We believe Vail has done relatively well this season in driving visitation to its Mountain Resorts with the introduction of the Epic pass, as well as in taking the appropriate measures to reduce costs. Its balance sheet is among the strongest among its lodging peers with virtually no maturities through 2013. While we expect operations to remain weak this year and likely next, we believe at ~5x 2009 EBITDA versus ~10x for its lodging peers, the valuation remains compelling at this time.
Valuation Range: $25 to $27 Our valuation range is based on 6.5-7.0x FY 2009 Resort EBITDA plus estimated real estate held for investment. Risks to our valuation range include a a significant slowing in high-end U.S. consumption, continued deceleration in destination skier visits, incremental reduction in off-mountain spend per visit and a delay in development/closing of residential units.
Investment Thesis: Vail caters to the high-end destination leisure guest with 5 top U.S. ski resorts, on-mountain lodging, and RockResorts brand. We believe the current environment could prove challenging for Vail operationally, however, at the current valuation, we believe the shares are quite compelling.