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Bear of the Day: Vail Resorts (MTN)

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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 - Free 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:

  • Resort Reported EBITDA increased 14.2% to $202.7 million for the third quarter of fiscal 2013 compared to the same period in the prior year. 
  • Net 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.   
  • Spring 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 Peaks
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 targets.

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 - Free Report) .  Their multiple is lower and we are currently in their peak season.  Earnings for Six Flags are due out on July 22nd.

Jared 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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