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Vail Resorts' Shares Surge 8% in 3 Months: More Room to Run?

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Vail Resorts, Inc. (MTN - Free Report) continues to bank on extensive marketing and acquisition strategies to drive growth. The company’s widespread geographical locations also help it cushion its business against weather disruption in any particular region. However, high costs, stemming from operations and acquisitions, are concerns.

Nevertheless, strong season pass programs and acquisitions led the company to witness earnings growth in the third quarter of fiscal 2019. Its earnings surpassed the Zacks Consensus Estimate in six out of the trailing seven quarters. In the trailing four quarters, it recorded average positive surprise of 3.6%.

Backed by such impressive earnings trend, shares of Vail Resorts have gained 8.2% over the past three months against the industry’s decline of 1.7%.


 

Catalysts Driving Growth

Vail Resorts extensively focuses on acquisitions and mergers to build stronger portfolio of differentiated and varied services. It acquired a few mountain resorts, hotel properties and other businesses complementary to its own as well as developable land in proximity to its resorts.

On Aug 15, 2018, the company acquired Stevens Pass Resort in Washington from Ski Resort Holdings, LLC, for $64 million. Additionally, on Sep 27, 2018, management acquired Triple Peaks, LLC, the parent company of Okemo Mountain Resort in Vermont; Crested Butte Mountain Resort in Colorado; and Mount Sunapee Resort in New Hampshire for a cash price of roughly $74 million. Vail Resorts expects these acquisitions to positively contribute to the company’s operating results going ahead.

Meanwhile, the company has a season pass program under which it offers a variety of season pass products for all the mountain resorts and urban ski areas in domestic and international markets. Increased demand for skiing has led Vail Resorts to witness higher season pass sales lately. Through May 28, 2019, North America ski season pass sales increased approximately 9% in units and 13% in sales dollars on a year-over-year basis. The company witnessed season pass sales increase across all products and geographies, including destination markets.

Robust growth in season pass sales reflects Vail Resorts’ efficient guest-focused marketing efforts. The company orients its strategy with data analytics to drive targeted and personalized marketing toward guests. Guest data is captured through season pass programs; e-commerce platforms, including mobile lift ticket sales; the EpicMix application and operational processes at the lift ticket windows. Additionally, Vail Resorts involves in digital marketing and media advertising to drive traffic and sales.

Meanwhile, the company spent more than $1.2 billion over the last decade to drive guest loyalty. It is also about to implement new technology to improve direct-to-lift access at Vail, Beaver Creek and Keystone. Additionally, the company plans to invest in the full renovation of the Beaver Creek Children's Ski School facilities.

Concerns

While Vail Resorts’ relentless acquisition and merger are likely to prove beneficial over the long term, there are certain short-term risks associated. Firstly, the company is somewhat struggling with added expenses, stemming from acquisitions. In fiscal 2018, EBITDA included $10.2 million of acquisition and integration-related expenses.

Secondly, in order to finance acquisitions, the company increased borrowings. It borrowed $70 million for financing the Stevens Pass acquisition and an additional $195.6 million to fund the Triple Peaks acquisition.

Meanwhile, during the third quarter of fiscal 2019, total segmental operating expenses increased 13.6% year over year to $478.9 million. Resort operating expenses totaled $477.5 million, up 13.1% year over year.

Notably, the ski resort and lodging industries are highly competitive. There are roughly 470 ski areas in the United States that serve local and destination guests. Resultantly, Vail Resorts face intense competition from other ski providers. Coming to the lodging industry, it is already known how an oversupply of hotels in the United States gave rise to a stiff competitive environment.

Subsequently, the company faces heightened competition from hotel giants like Hyatt (H - Free Report) and Marriott (MAR - Free Report) , and small hospitality chains like Extended Stay America (STAY - Free Report) .

Vail Resorts currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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