Sky Lagoon And FlyOver Chicago Will Attract Visitors But Expansion Plans On Hold

Key Takeaways

• The sale of GES boosts Pursuit's focus on high-growth, high-margin businesses, aligning with its Refresh, Build, Buy strategy.
  
• Strategic acquisitions and operational recovery post-disruptions drive revenue growth and market presence, enhanced by strong demand and pricing power.
  
• Wildfire disruptions, strategic transitions, and reliance on external recoveries create significant risks to Pursuit Attractions and Hospitality's revenue, earnings, and long-term growth potential.

Catalysts

An attraction and hospitality company, owns and operates hospitality destinations in the United States, Canada, and Iceland.

• The completion of the transformative sale of GES will enable Pursuit to become a pure-play, high-growth, and high-margin business, allowing for financial flexibility to accelerate its Refresh, Build, Buy growth strategy. This is likely to positively impact earnings, as the company can focus on its high-return hospitality and attractions business.
  
• Pursuit's recent $15.9 million tuck-in acquisition of assets in the Glacier Park Collection is expected to expand their successful offerings, possibly driving revenue growth due to increased synergies and enhancing their market presence in that area.
  
• Despite temporary disruption due to wildfires, with most attractions and lodges reopening and bookings for the upcoming seasons tracking well, there is an expectation of increased demand and occupancy rates in Jasper National Park. This recovery will likely improve revenue and net margins as more operations return to normal and demand pressures help raise room rates.
  
• Strong growth in iconic experiences, such as the Sky Lagoon in Iceland and the FlyOver Chicago attraction, demonstrates the effectiveness of dynamic pricing and strategic investments, which help drive visitation and enhance ticket prices. This could lead to significant future increases in revenue and profitability.
  
• With the removal of 400 hotel room keys from the market, the resulting compression and rarity of available accommodations should enhance Pursuit's pricing power, thus potentially improving room revenue and net margins in the coming years.

Pursuit Attractions and Hospitality Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pursuit Attractions and Hospitality's revenue will decrease by 49.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 17.2% in 3 years time.
• Analysts expect earnings to reach $30.9 million (and earnings per share of $0.31) by about February 2028, up from $21.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $37.5 million in earnings, and the most bearish expecting $19.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.5x on those 2028 earnings, up from 48.4x today. This future PE is greater than the current PE for the US Commercial Services industry at 29.2x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.76%, as per the Simply Wall St company report.

Pursuit Attractions and Hospitality Future Earnings Per Share Growth

Risks

• The temporary closures and disruption caused by wildfire activity in Jasper National Park led to a significant revenue decline of $21.9 million year-over-year, posing ongoing risks to revenue and earnings.
  
• The removal of 400 hotel rooms from the Jasper market due to fire damage could create market compression, but also adds uncertainty regarding future occupancy and room rates, impacting revenue and net margins.
  
• The pending sale of GES and transition to a stand-alone Pursuit may incur significant transition-related costs, including approximately $20 million by the end of the year and $5-6 million in 2025, which could affect net earnings and financial stability during the transition period.
  
• Reliance on external factors such as insurance recoveries is crucial for mitigating fire-related losses, but uncertainties remain regarding the timing and amount of recoveries, potentially impacting cash flow and net income.
  
• The decision not to deploy capital into future FlyOver locations during a period of strategic focus indicates potential limitations in growth areas, which could affect long-term revenue growth and earnings potential.

Valuation

• The analysts have a consensus price target of $55.0 for Pursuit Attractions and Hospitality based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $179.5 million, earnings will come to $30.9 million, and it would be trading on a PE ratio of 62.5x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $37.69, the analyst price target of $55.0 is 31.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.