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Bear of the Day: Marriott Vacations (VAC)

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Marriott Vacations Worldwide Corporation (VAC - Free Report) just closed on a big acquisition that could have significant impacts. But estimates are still coming down for the Zacks Rank #5 (Strong Sell) after the hurricanes took some of the momentum out of last quarter.

Marriott Vacations offers vacation ownership (aka timeshares), exchange, rental and resort and property management at more than 100 resorts worldwide. It has nearly 650,000 owners and members in its portfolio that includes 7 vacation ownership brands.

It also has a membership program with nearly 3,200 resorts in over 80 nations which has about 2 million members. Additionally, the company manages 200 other resorts and lodging properties.

It has long-term relations with Marriott International and Hyatt Hotels Corporation for the development, sales and marketing of vacation ownership products and services.

ILG Deal Closed in September

The company closed on its acquisition of ILG, Inc. on Sep 1, 2018 so a month of those earnings were also incorporated into the third quarter earnings report.

This deal creates a juggernaut in the travel industry as it combines both Marriott and Hyatt brands under one roof.

It now operates 7 upscale brands including: Marriott Vacation Club, Grand Residences by Marriott, Ritz-Carlton Destination Club, Sheraton Vacation Club, Westin Vacation Club, St. Regis Residence Club and Hyatt Residence Club.

Marriott Vacations paid $4.6 billion in consideration for the deal. It expects to see synergies of at least $100 million.

Another Miss in the Third Quarter

On Nov 7, Marriott Vacations reported its third quarter results and missed on the Zacks Consensus Estimate by 34 cents.

Earnings were $1.42 versus the Zacks Consensus of $1.76. It was the third earnings miss in a row.

The quarter saw impacts by two hurricanes, however, Hurricane Lane in Hawaii and Hurricane Florence on the US east coast, both of which forced evacuations, cancellations and clean-up.

The company estimated that the hurricanes impacted the quarter by $0.12.

Marriott Legacy revenue was up 16% year-over-year.

The all-important contract signings also surged, with the Legacy Marriott contracts up 18% to $242 million, but if you strip out the impact of the hurricanes, the company estimates they would have been up 21% to $247 million.

The consumer is alive and well, apparently.

Estimates Revised Down

However, even with these solid numbers, 1 estimate has been revised lower for 2018 and 2019 in the last week which is enough to send the stock to a Zacks Rank #5 (Strong Sell).

The 2018 Zacks Consensus Estimate is holding at $7.05, which is up 22% from the $5.78 it made last year, but that now includes the ILG acquisition.

The analysts see another 16.5% earnings gain in 2019 but the one estimate cut has pushed the Zacks Consensus down to $8.21 from $8.67 in the last week.

Shares Dive: Is it a Buying Opportunity?

Investors have been fleeing this stock in 2018 as shares have plunged 44% year-to-date.

The thinking goes, if the global economy is going to go into recession, who's going to buy a timeshare? So they've been taking their gains and getting out.

Because of that it's gotten much cheaper, with a forward P/E of just 10.7. It also has a price-to-book ratio of just 0.7. A P/B ratio under 1.0 usually indicates value.

Marriott Vacations is shareholder friendly with both a share buyback and a dividend, which is currently yielding 1.8%.

However, if you're interested in the timeshare industry and don't want to wait for Marriott Vacations to turn its Rank around, you might want to take a look at Hilton Grand Vacations (HGV - Free Report) . It's also cheap, with a forward P/E of just 9.2, but it has a better Rank. It's a Zacks Rank #3 (Hold).

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