Accor's Calculated Partnerships And Expansion Drive Thrilling Revenue And Margin Growth

Key Takeaways

• Strategic partnerships and expansion into international markets promise new customer acquisition and revenue growth, enhancing adjusted EBITDA and revenue.
  
• Better credit quality and favorable asset-backed security terms could lower financial risks and support net margin and cash flow improvements.
  
• Vulnerability to climate risks and market saturation, coupled with economic pressures, may limit Travel + Leisure's growth in Vacation Ownership and Travel & Membership segments.

Catalysts

Provides hospitality services and travel products in the United States and internationally.

• The increase in new owner mix combined with a high volume per guest (VPG) suggests future revenue growth potential, as new owners typically spend 2.6 times their initial purchase on upgrades and associated fees. This is expected to drive gross VOI sales and overall revenue growth.
  
• The improvement in average FICO scores for new originations and reduced exposure to lower FICO segments imply better credit quality, potentially increasing net margins by reducing defaults and loan losses in the loan portfolio.
  
• The successful integration and expansion of the Accor Vacation Club is poised to accelerate growth next year, contributing positively to adjusted EBITDA and revenue through additional sales sites and international market penetration.
  
• Strategic partnerships with companies such as Wyndham Hotels, Allegiant, and Live Nation are expected to provide additional channels for tour growth, potentially boosting revenue and earnings by increasing the volume of new customer acquisitions.
  
• Improved access to the asset-backed securities (ABS) market with favorable terms suggests future interest rate headwinds may turn into tailwinds, positively impacting EBITDA margins and free cash flow as these terms allow for lower financing costs.

Travel + Leisure Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Travel + Leisure's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.2% today to 11.4% in 3 years time.
• Analysts expect earnings to reach $490.8 million (and earnings per share of $7.8) by about November 2027, up from $389.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.4x on those 2027 earnings, up from 9.2x today. This future PE is lower than the current PE for the US Hospitality industry at 24.4x.
• Analysts expect the number of shares outstanding to decline by 2.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.86%, as per the Simply Wall St company report.

Travel + Leisure Future Earnings Per Share Growth

Risks

• The recent impact of hurricanes and wildfires on operations suggests potential vulnerability to climate-related risks, which could lead to unplanned disruptions affecting revenue and earnings.
  
• A slowdown in new owner tour growth, particularly noted in Las Vegas, and broader gaming industry weakness could limit future growth potential in Vacation Ownership sales and revenues.
  
• There may be ongoing pressure in the Travel & Membership segment, as indicated by a decline in exchange volumes and revenue, potentially impacting overall profitability and net margins.
  
• Interest rate headwinds resulted in a $14 million hit, indicating that fluctuations in borrowing costs could continue to affect margin and net income until rates stabilize or decrease.
  
• The potential saturation of the Vacation Ownership market and increased competition could hinder the company’s ability to maintain its current growth trajectory in revenue and market share.

Valuation

• The analysts have a consensus price target of $54.58 for Travel + Leisure 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 $64.0, and the most bearish reporting a price target of just $40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.3 billion, earnings will come to $490.8 million, and it would be trading on a PE ratio of 9.4x, assuming you use a discount rate of 10.9%.
• Given the current share price of $52.6, the analyst's price target of $54.58 is 3.6% 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.