Marriott Vacations: Profits in Timeshares
06/20/2017 2:56 am EST
Marriott Vacations (VAC) is the exclusive worldwide developer, marketer and manager of timeshare properties for the Marriott Vacation Club and Grand Residences brand names, explains Mike Cintolo, editor of Cabot Top Ten Trader.
It’s also the exclusive developer and seller for some Ritz-Carlton brands. The firm has over 60 resorts worldwide, though the vast majority of its business is in North America.
All told, the lions share of business comes from contract sales; in the first quarter, those sales rose about 16% on an adjusted basis, while resort management service revenue also grew 16% and rental revenue ticked up 6%.
Those aren’t amazing figures, but tight cost controls mean that any increase in business falls mostly to the bottom line.
And that’s what’s been happening in recent quarters—earnings have been kiting higher as business has picked up, with cash flow even stronger than reported earnings. Quarterly earnings have risen 19%, 17%, 65% and 40% over the previous four quarters.
Management expects about $170 of free cash flow this year, or $6.10 per share, compared to earnings estimates of $5.29.
There’s no great growth story here that we can see, but Marriott Vacations is well managed, is spinning off a lot of cash (partly used to fund a 1.2% dividend and a modest share buyback program).
In addition, the continuing economic recovery means more and more people are willing and able to make a timeshare commitment.
Like most economically-sensitive stocks, VAC plunged in the second half of 2015 and early 2016, and while it bottomed at $46 last Feburay, it had trouble making much progress through October.
But post-election, VAC has been in a steady uptrend, running to $90 in December, $99 in late February, and as high as $125 in early May after first-quarter earnings. Since then, shares have consolidated nicely, offering up a reasonable entry point.