Expanding Experiences And Services Propel Revenue And Earnings Growth Amid Challenges

Key Takeaways

• Viad's strategic expansion in experiential marketing and steady growth in attraction ticket revenue indicate potential for continued revenue increase.
  
• Financial stability through a strong liquidity position and controlled leverage points to an ability to support growth initiatives or return value to shareholders.
  
• Wildfires, pandemic recovery challenges, and increased operational costs could significantly disrupt Viad's earnings and growth prospects across its divisions.

Catalysts

Provides hospitality, leisure activities, experiential marketing, and live events in the United States, Canada, Europe, the Middle East, and Africa.

• GES's increased revenue and margin improvement are likely due to price increases, capturing more same-show spend through additional services, and overall higher spending trends, impacting future revenue growth and net margins.
  
• Pursuit's growth in attraction ticket revenue, driven by a 15% increase in visitors and higher effective ticket prices, especially from the new FlyOver Chicago attraction, suggests potential for continued revenue growth from both existing and new attractions.
  
• Viad's focus on refreshing and expanding its experiential marketing services through Spiro, including 64 new client wins since early 2022, indicates a strategy to boost revenue through expanding its client roster and offering additional services to existing clients.
  
• The report of a strong liquidity position and a leverage ratio below the targeted range suggests financial stability that could support future growth initiatives, investments in new projects, or shareholder returns through buybacks/dividends, positively affecting earnings.
  
• Pursuit's strategy to meaningfully scale its operations through Refresh, Build, Buy initiatives, coupled with strong demand trends for its experiences, suggests potential for significant growth in revenue and market share in the experiential travel sector.

Assumptions

• Analysts are assuming Viad's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.5% today to 5.1% in 3 years time.
• Analysts expect earnings to reach $74.9 million (and earnings per share of $0.14) by about September 2027, up from $20.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.3x on those 2027 earnings, down from 37.3x today. This future PE is lower than the current PE for the US Commercial Services industry at 26.7x.
• Analysts expect the number of shares outstanding to grow by 1.37% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.8%, as per the Simply Wall St company report.

Risks

• The wildfire activity in Jasper National Park and its impact on Viad's operations might lead to short-term revenue declines and disrupt the company's earnings prospects due to the closure and evacuation of the park, affecting Pursuit's performance.
  
• Viad's reliance on the return to pre-pandemic levels of event square footage and higher revenue per net square foot as major levers for growth may face challenges if the event and exhibition industry experiences slower recovery or setbacks, potentially impacting GES's revenue and margins.
  
• Unexpected costs or inefficiencies in Viad's experiential marketing agency, Spiro, particularly if new client acquisition costs escalate or if the spending from existing clients does not meet expectations, could negatively affect net margins.
  
• The insurance recovery process for the losses related to the Jasper wildfire might be lengthy and complex, with the potential for disputes over the extent of business interruption and property damage coverage, potentially impacting Viad's net income in the short to medium term.
  
• Market conditions that lead to increased pricing pressure on Viad's GES segment, especially if competitors lower prices or if clients reduce their event spending, could result in lower than anticipated margins and EBITDA for the company.

Valuation

• The analysts have a consensus price target of $44.33 for Viad based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $41.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.5 billion, earnings will come to $74.9 million, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $35.3, the analyst's price target of $44.33 is 20.4% higher.
  
• 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.