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Here's Why You Should Hold on to Marriott Vacations for Now
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Marriott Vacations Worldwide Corporation’s (VAC - Free Report) robust demand for future, strong revenue-building capacities, digital innovations and synergies from ILG acquisition bode well. Moreover, the company has enough liquidity to navigate through the coronavirus pandemic for some time. In the past three months, shares of the company have gained 33.1%, compared with the industry’s rally of 11.8%. However, coronavirus woes and high costs of operations linger remain headwinds.
Factors Likely to Drive Growth
On the first-quarter conference call, management announced that the company has 2.018 million owner nights booked from July to December of 2020 compared with 2.093 million in 2019. Despite the coronavirus pandemic, the bookings were down only 4%. Although there might be cancellations due to the coronavirus, we believe the future demand is high. Moreover, Marriott Vacation has also been focusing on digital expansion and innovation of latest techniques.
Marriott Vacations completed the acquisition of ILG, Inc. — a provider of professionally delivered vacation experiences — in September 2018. Post the completion of the buyout, the company’s pipeline expanded to more than 100 resorts. It expects to realize greater cost synergies from the ILG acquisition in 2020. In 2019, it realized $49 million through the integration of ILG. In fact, management anticipates realizing merger cost synergies within $25-30 million in 2020 and about $125 million by the end of 2021.
Marriott Vacations has sufficient liquidity to temporarily survive in the current scenario of uncertainty. As of Mar 31, 2020, the company’s cash and cash equivalents (including restricted cash) came in at $1.02 billion compared with $701 million at the end of Dec 31, 2019. Although the company’s long-term debt at the end of first-quarter 2020 stood at $4.7 billion, up from $4.1 billion as of Dec 31, 2019, it has no corporate debt maturities until September 2022.
Concerns
Given the widespread nature of its business, Marriott Vacations witnessed massive declines in occupancy, rentals and contract sales owing to the COVID-19 pandemic. Notably, the company withdrew 2020 guidance. It also suspended its share repurchase programs and dividends payment for the foreseeable future. Nonetheless, the company initiated certain actions to offset the negative impact. This includes furloughs, reduced work hours and a 50% salary cut in the company's executive leadership team. It also drafted plans to curb investment in capital expenditures and inventory.
High costs of operations also remain a concern. Costs in the coming quarters are likely to rise due to the coronavirus pandemic. Management stated that monthly cash burn will be $10 million from May through December even if sales and rentals are not resumed to the pre-pandemic levels this year.
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Here's Why You Should Hold on to Marriott Vacations for Now
Marriott Vacations Worldwide Corporation’s (VAC - Free Report) robust demand for future, strong revenue-building capacities, digital innovations and synergies from ILG acquisition bode well. Moreover, the company has enough liquidity to navigate through the coronavirus pandemic for some time. In the past three months, shares of the company have gained 33.1%, compared with the industry’s rally of 11.8%. However, coronavirus woes and high costs of operations linger remain headwinds.
Factors Likely to Drive Growth
On the first-quarter conference call, management announced that the company has 2.018 million owner nights booked from July to December of 2020 compared with 2.093 million in 2019. Despite the coronavirus pandemic, the bookings were down only 4%. Although there might be cancellations due to the coronavirus, we believe the future demand is high. Moreover, Marriott Vacation has also been focusing on digital expansion and innovation of latest techniques.
Marriott Vacations completed the acquisition of ILG, Inc. — a provider of professionally delivered vacation experiences — in September 2018. Post the completion of the buyout, the company’s pipeline expanded to more than 100 resorts. It expects to realize greater cost synergies from the ILG acquisition in 2020. In 2019, it realized $49 million through the integration of ILG. In fact, management anticipates realizing merger cost synergies within $25-30 million in 2020 and about $125 million by the end of 2021.
Marriott Vacations has sufficient liquidity to temporarily survive in the current scenario of uncertainty. As of Mar 31, 2020, the company’s cash and cash equivalents (including restricted cash) came in at $1.02 billion compared with $701 million at the end of Dec 31, 2019. Although the company’s long-term debt at the end of first-quarter 2020 stood at $4.7 billion, up from $4.1 billion as of Dec 31, 2019, it has no corporate debt maturities until September 2022.
Concerns
Given the widespread nature of its business, Marriott Vacations witnessed massive declines in occupancy, rentals and contract sales owing to the COVID-19 pandemic. Notably, the company withdrew 2020 guidance. It also suspended its share repurchase programs and dividends payment for the foreseeable future. Nonetheless, the company initiated certain actions to offset the negative impact. This includes furloughs, reduced work hours and a 50% salary cut in the company's executive leadership team. It also drafted plans to curb investment in capital expenditures and inventory.
High costs of operations also remain a concern. Costs in the coming quarters are likely to rise due to the coronavirus pandemic. Management stated that monthly cash burn will be $10 million from May through December even if sales and rentals are not resumed to the pre-pandemic levels this year.
Marriott Vacations, which shares space with Extended Stay America, Inc. , Choice Hotels International, Inc. (CHH - Free Report) and Hilton Grand Vacations Inc. (HGV - Free Report) , 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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