Vail Resorts, Inc. MTN is riding high on robust earnings trend, season pass program and efforts to drive guest loyalty. As a result, shares of the company have increased 19.5% in the past three months against the industry’s 0.8% decline. However, high costs of operations and weather-related woes linger. Let’s delve deeper.
Vail Resorts has a season pass program, under which the company offers a variety of season pass products for all the mountain resorts and urban ski areas in domestic and international markets. The company recently witnessed higher season pass sales owing to increased demand for skiing. Through May 28, 2019, North America ski season pass sales increased approximately 9% in units and 13% in sales dollars on a year-over-year basis. The company also witnessed robust season pass sales across all products and geographies including destination markets.
Notably, robust growth in the season pass sales reflects Vail Resorts’ efficient guest-focused marketing efforts. The company orients its strategy with data analytics to drive targeted and personalized marketing toward guests. Guest data is captured through season pass programs; e-commerce platforms including mobile lift ticket sales; the EpicMix application and operational processes at the lift ticket windows. Additionally, Vail Resorts involves in digital marketing and media advertising to drive traffic and sales.
In a bid to drive guest loyalty, the company has spent more than $1.2 billion over the last decade. Also, it is about to implement new technology for improving direct-to-lift access at Vail, Beaver Creek and Keystone. Vail Resorts plans to invest in a full renovation of the Beaver Creek Children's Ski School facilities as well.
This Zacks Rank #3 (Hold) company’s widespread geographical boundaries is an added positive. Apart from operations in the United States, Vail Resorts has expanded in North America, Japan and Europe. By widely diversifying its geographical locations, the company aims to cushion the business from weather inconsistencies.
Vail Resorts' operational efficiencies come at the cost of increased expenses. During the third quarter of fiscal 2019, total segmental operating expenses increased 13.6% year over year to $478.9 million. Resort operating expenses totaled $477.5 million, up 13.1% year over year.
Furthermore, Vail Resorts’ business is highly dependent on weather conditions. Particularly, the ski business directly depends on the amount and timing of snowfall. Unfavorable weather conditions can adversely impact skiers’ visits and in turn hurt the company’s revenues and profits. Unseasonably warm weather may also result in inadequate natural snowfall and reduce skiable terrain, which increases costs of snowmaking.
Since the leisure service providers are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just its equity but also the level of debt on a company’s balance sheet. For capital-intensive companies, the EV/EBITDA is a better valuation metric because it is unaffected by the changing capital structures and ignores effects of non-cash expenses on a company’s value. The trailing 12-month EV/EBITDA ratio of Vail Resorts is 14.99, which is overvalued compared with the industry’s 7.05 and the S&P 500’s 11.11.
Better-ranked stocks worth considering in the same space include AMC Entertainment Holdings, Inc. AMC, Lindblad Expeditions Holdings, Inc. LIND and Speedway Motorsports, Inc. TRK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMC Entertainment has an impressive long-term earnings growth rate of 10%.
Lindblad Expeditions current-year earnings are likely to witness 112.5% growth.
Shares of Speedway Motorsports have gained 33% in the past three months.
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