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Vail Resorts: A High-Barrier-To-Entry Strong Buy

Skier On Top of Cliff with Majestic Mountain View Vail Colorado – Scenic POV view of skier on top of 25 ft cliff looking down.Getty

Vail Resorts (MTN) is a premier mountain resort company and a leader in luxury, destination-based travel at iconic locations. The company operates in three separate, but highly integrated segments: (1) the mountain segment owns and operates ten world-class mountain resorts and three urban ski areas, (2) the lodging segment owns and/or manages a portfolio of luxury hotels and condos, resorts, and gold courses, and (3) the real estate development segment.

Fundamentals remain strong for mountain resorts as there are limited new projects constructed, making the moat wide for Vail Resort’s high-barrier-to-entry business model. Customers are generally high-end vacation travelers serving a niche target market in which brand serves a critical element.

Vail Resorts are the “most visited” in terms of volume (6 of top 10 in North America) and the strongest brands with 5 of top 6 in unaided destination awareness.

Source: MTN Investor Presentation

In the latest quarter (Q2-19) Vail Resorts saw strong visitation and spend: Resort net revenue was $849.3 million, an increase of 15.6% (compare to 2018) and Resort also reported EBITDA of $358 million, an increase of 15.9% (compared to the prior year). Mountain revenue was $776.1 million, or 15.7% from the prior year, and mountain reported EBITDA of $352.2 million, up 15.4% from the prior year. Lodging results were positive, with revenue (excluding payroll cost reimbursement) increasing 16.1% compared to the prior year.

Several catalysts make Vail Resorts attractive, including new acquisitions in Australia and the introduction of a new Day Pass, that’s powered by innovative marketing concepts that drive guest decisions. The company is hoping that guests commit in advance, which is proven to lead to higher overall satisfaction, and that leads to long-term loyalty.

A moat worthy brand manifests itself as a repeatable model and Vail Resorts is hoping that the loyalty programming will lead to sustainable profits. Eager consumers are willing to fork over the dollars to enjoy premier destinations thanks to the experience Vail Resorts has created as part of its brand.

Weather certainly plays a factor with this stock, but Vail Reports is off to a strong start, as metrics are strong: Lift ticket revenue is up 9.6%, ski school revenue is up 7.4%, dining revenue is up 7.9%, and skier visits are up 7.9%.

Also, Vail Resorts recently announced a 20% increase to its quarterly dividend and declared a quarterly cash dividend on the common stock of $1.76 per share. The approval of this increase and dividend provides shareholders with an overall growth in dividend averaging 30% per year over the last three years.

Dividend payments provide investors with valuable signals regarding management’s willingness to reward shareholders and Vail has consistently increased its dividend providing strong shareholder alignment. Shares now trade at 13.3x EV/EBITDA with a dividend yield of 2.7%. Compare that to last August when Vail was trading at just under $300 per share (at 19.9x EV/EBITDA).

In short, we believe that Vail Resorts deserves a Strong Buy Rating, and we are targeting shares to return in excess of 25% over the next twelve months. Keep in mind, the company is not a REIT so it does not have to payout a dividend (pursuant to REIT laws). However, we like the business model (that includes a lot of owned real estate) and this “strong buy” pick has a highly sustainable moat given the difficulty of duplication.

Source: FAST Graphs

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