Transformation Plan And My Epic Gear App To Drive Earnings Growth At Whistler Blackcomb

Key Takeaways

• The resource efficiency transformation plan and strong season pass sales are expected to improve net margins, earnings, and revenue growth.
  
• Capital investments and digital enhancements aim to boost guest experiences, increasing long-term revenue and operating efficiency.
  
• Weather variability, declining pass sales, lodging challenges, and currency risks highlight ongoing revenue and demand issues for Vail Resorts.

Catalysts

Through its subsidiaries, operates mountain resorts and regional ski areas in the United States and internationally.

• The 2-year resource efficiency transformation plan aims to achieve $100 million in annualized cost efficiencies by the end of fiscal 2026 through scaled operations and global shared services, which is likely to improve net margins and earnings.
  
• The 2024-2025 North American season pass sales highlight strong loyalty and price realization, with a 59% increase in units over the last four years and a 4% increase in sales dollars for the upcoming season, which is expected to drive revenue growth.
  
• Significant capital investments, including a $198-$203 million core capital plan for 2025 and $45 million growth capital investments at European resorts, aim to enhance guest experiences, likely boosting long-term revenue and earnings.
  
• Early season conditions and improved terrain openings at key resorts suggest potential for increased visitation and skier spending, positive indicators for revenue growth.
  
• The introduction of new digital enhancements and My Epic Gear app is expected to lead to increased ancillary spending, impacting revenue and operating efficiency positively.

Vail Resorts Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vail Resorts's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.1% today to 10.8% in 3 years time.
• Analysts expect earnings to reach $359.2 million (and earnings per share of $8.74) by about December 2027, up from $233.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $298.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.3x on those 2027 earnings, down from 30.4x today. This future PE is greater than the current PE for the US Hospitality industry at 23.6x.
• Analysts expect the number of shares outstanding to grow by 3.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.37%, as per the Simply Wall St company report.

Vail Resorts Future Earnings Per Share Growth

Risks

• Vail Resorts experienced a decline in its Australian resorts' EBITDA due to record low snowfall, highlighting weather's impact on demand and revenue.
  
• Pass sales for the 2024-2025 North American ski season showed a 2% unit decline, despite an 8% price increase, potentially impacting revenue growth if this trend continues.
  
• Lodging bookings at Whistler Blackcomb are lagging prior year levels, indicating potential revenue challenges if these trends persist.
  
• Currency exchange rates could negatively impact fiscal 2025 guidance by approximately $5 million in EBITDA, highlighting an ongoing risk to earnings.
  
• The company continues to face industry normalization challenges impacting demand, potentially affecting revenue and earnings if not addressed.

Valuation

• The analysts have a consensus price target of $202.0 for Vail Resorts 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 $247.0, and the most bearish reporting a price target of just $165.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.3 billion, earnings will come to $359.2 million, and it would be trading on a PE ratio of 29.3x, assuming you use a discount rate of 8.4%.
• Given the current share price of $189.19, the analyst's price target of $202.0 is 6.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.