Selecting the Bear of the Day is an extremely difficult
process. There are multitudes of great
American companies out there and the last thing I want to do is seem like I’m
putting one down.
The truth of the matter is that just because a stock makes
the “Bear of the Day List” doesn’t mean that it’s a poor company or can’t appreciate
in value. More appropriately, they are
stocks that are either struggling now or stocks that we believe may struggle in
the near future.
Today’s Bear is Vail Resorts
Inc. (MTN - Snapshot Report). While it might make sense
that a company with a popular, high dollar ski destination in the name is a
bearish stock in the middle of the summer, you must keep in mind that Vail
operates facilities year round and seasonal variations are somewhat built into
the share price.
If you’re not familiar with the company, they own and/or
operate land, real estate and high end resorts globally.
Aside from the most profitable part of their business being weather
dependant, you have the seasonal effects as well as aging demographics of their
key clientele as well as minimal growth in the industry.
There is also increasing competition being pushed on
consumers by the likes of Groupon, Living Social, Travelzoo and more.
Fiscal Q3 Call
On June 6th, the company reported decent earnings
of $2.66, but fell 3.6% short of the Zacks Consensus Estimate of $2.76.
On the surface, the numbers looked good:
Reported EBITDA increased 14.2% to $202.7 million for the third
quarter of fiscal 2013 compared to the same period in the prior
Income attributable to Vail Resorts, Inc. increased 22.7% to $97.6
million for the third quarter of fiscal 2013, compared to the same
period in the prior year.
season pass sales for the 2013/2014 ski season were up approximately 18%
in units and approximately 24% in sales dollars through May 28, 2013 compared
with the prior year period ended May 29, 2012.
While these numbers seemed notable, analysts were expecting
more. Keep in mind that cumulative snowfall
fell almost 60% in 2012 versus 2011, so analysts were really looking for a rebound
here. The stock also trades at quite the
earnings premium and needs to deliver big results just to keep shares afloat.
Following the results, we have seen analysts’ estimates drop
over 30% for FY2103 and 25% for FY2014 since the last earnings report.
Stock Still Skiing Near
Even with the recent correction, shares of MTN are not far
from their highs and have seemed to defy the downgrades by analysts. The current share price puts MTN at 64 times
forward earnings even after analysts have brought down their estimates and
Vail Resorts is expected to see a small decline in revenue for
the year, but is expected to squeeze a 24% increase in earnings from that
decline. This might be hard to do if
weather and the economy don’t cooperate just perfectly (and they usually don’t).
While the company may not be in immediate trouble and could
very well bounce back in the future; the current state of the economy, summer
slow season and outrageous valuations could spark a small avalanche for the
stock in the near term. Vail Resorts reports earnings on September 24th.
If you’re looking for a resort stock with a slightly more
conservative valuation, you might want to check out Zacks Rank #1 Six Flags Entertainment group (SIX - Snapshot Report). Their multiple is lower and we are currently in
their peak season. Earnings for Six
Flags are due out on July 22nd.
A Levy is one of the most highly sought after traders in the world and a former
member of three major stock exchanges. That is why you will frequently see him
appear on Fox Business, CNBC and Bloomberg providing his timely insights to
other investors. He has written and published two tomes, “Your
Options Handbook” and “The
Bloomberg Visual Guide to Options”. You can discover more of his
insights and recommendations through his two portfolio recommendation services:
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