Vail Resorts, Inc. MTN is likely to benefit from investments in expansion projects, technological enhancements and a solid season pass program. Also, emphasis on acquisition initiatives bodes well. In the past three months, shares of the company have declined 2.6% compared with the industry’s fall of 27%. However, inflationary labor costs and a fall in traffic from pre-pandemic levels are a concern.
Let’s discuss the factors that suggest that investors should retain the stock for the time being.
Vail Resorts continues to reinvest in its resorts to boost customer traffic. For fiscal 2022, the company has set aside approximately $315-$325 million to provide increased lift capacity and enhance the guest experience. The plan includes the installation of 21 new or replacement lifts across 14 of its resorts. It also includes a transformational lift-served terrain expansion at Keystone. The company believes that the initiative will boost the lift capacity by more than 45% in those locations. Apart from lift upgrade and terrain expansion projects, the company is focused on technological enhancements to support its data-driven approach, guest experience and corporate infrastructure.
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Vail Resorts has been witnessing higher season pass sales lately. In the fiscal second quarter, the company witnessed 69% visitation from its season pass holders compared with 56% in the prior-year quarter. MTN is benefiting from its offerings such as Epic Pass, Epic Local Pass, Epic Day Pass and Epic Coverage. Going forward, Vail Resorts is optimistic about strong leisure travel demand and unit growth in terms of renewing pass holders. The company’s ability to leverage guest data, targeted digital marketing efforts, broad product offering, and associated discounts are likely to yield in the upcoming periods.
Vail Resorts focuses on acquisition initiatives to drive growth. On Mar 28, 2022, the company entered an agreement to acquire a 55% stake in Andermatt-Sedrun Sport AG, a destination ski resort in Central Switzerland. This marks the company's first strategic investment for operating in Europe. Per the agreement, Vail Resorts will be provided access to the resort's mountain and ski-related assets, including lifts, restaurants and a ski school operation. The company anticipates the partnership to drive growth from investments in the resort (CHF 110 million), development in the base area (CHF 39 million) and the resort’s inclusion in the Epic Pass products. It anticipates the initiative to generate more than CHF 5 million EBITDA in the fiscal year ending Jul 31, 2024.
The company’s margins have been bearing the brunt of inflationary labor costs. In the fiscal second quarter, labor-related costs increased 22.7% primarily due to increased staffing associated with improved North America operations on fewer COVID-related limitations and restrictions and improved demand on a year-over-year basis. The company stated that it increased its focus on hiring, retention and talent development for supporting business operations in the upcoming periods. For fiscal 2023, it anticipates labor expenses, including inflationary adjustments, to be more than $175 million from the fiscal 2022 levels.
Although the company is optimistic about the 2022 performance, the coronavirus-related woes cannot be ruled out. In the second quarter of fiscal 2022, the company’s operations were negatively impacted by the coronavirus-induced travel trends at Whistler Blackcomb and Australian resorts, operational restrictions, and staffing challenges. Even though the company is witnessing sequential improvements in visitation, it is still lower than the pre-pandemic levels. Due to the crisis' uncertain nature, future outbreaks and prolonged shutdowns cannot be ruled out.
Zacks Rank & Stocks to Consider
Vail Resorts currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A few better-ranked stocks in the Zacks Consumer Discretionary sector are Civeo Corporation CVEO, Funko, Inc. FNKO and Bluegreen Vacations Holding Corporation BVH.
Civeo sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 1,565.1%, on average. Shares of the company have increased 75.2% in the past year.
The Zacks Consensus Estimate for CVEO’s 2022 sales and earnings per share (EPS) suggests growth of 12.5% and 1,450%, respectively, from the year-ago period’s levels.
Funko carries a Zacks Rank #2 (Buy). FNKO has a trailing four-quarter earnings surprise of 78.7%, on average. Shares of the company have declined 26% in the past year.
The Zacks Consensus Estimate for Funko’s current financial year sales and EPS suggests growth of 26.8% and 31%, respectively, from the year-ago period’s reported levels.
Bluegreen Vacations carries a Zacks Rank #2. BVH has a trailing four-quarter earnings surprise of 85.9%, on average. The stock has increased 30.8% in the past year.
The Zacks Consensus Estimate for BVH’s current financial year sales and EPS indicates growth of 11.2% and 35.1%, respectively, from the year-ago period’s reported levels.
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