Calculated Shifts And Resort Expansions Set To Propel The Company's Growth And Market Share

Key Takeaways

• Efforts to expand the customer base through increased first-time buyer tours and adjustments in sales promotions indicate proactive strategies to boost future revenues.
  
• The recovery and expansion plan, including the opening of new resorts, signifies growth opportunities that could enhance the company's market share and earnings.
  
• Softer demand among new customers and increased loan delinquencies, alongside soft market recoveries and macroeconomic uncertainties, may impact profitability and revenue growth.

Catalysts

A vacation company, develops, markets, sells, and manages vacation ownership and related businesses, products, and services in the United States and internationally.

• The company's shift in strategy towards growing first-time buyer tours by 9% reflects an effort to expand its customer base and could lead to an increase in contract sales, potentially boosting future revenues as these new owners engage more over time.
  
• Adjustments in sales promotions to combat softening in VPGs (Volume Per Guest) show a proactive approach to stimulating demand among prospective buyers, which could support an uptick in contract sales and positively impact future earnings.
  
• The increase in resort occupancies, driven by a 4-point improvement in rental occupancies, highlights a robust demand for the company's offerings. This tendency could lead to higher rental revenues, enhancing the net margins in the Vacation Ownership segment.
  
• An expected average maintenance fee increase of less than 5% for Points products, after years of significantly higher increases, may restore confidence among both recent first-time buyers and long-term owners, potentially stabilizing and then increasing revenues from maintenance fees over time.
  
• The recovery of Maui, albeit slower than expected, and the planned opening of new resorts, including the first new U.S. resort opening in Waikiki since the pandemic, alongside international expansion, present significant growth opportunities for the company. These developments could stimulate future contract sales growth and increase the company's global market share, positively impacting overall revenues and earnings.

Assumptions

• Analysts are assuming Marriott Vacations Worldwide's revenue will grow by 25.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.2% today to 7.5% in 3 years time.
• Analysts expect earnings to reach $458.8 million (and earnings per share of $10.45) by about October 2027, up from $161.0 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 11.4x on those 2027 earnings, down from 17.4x today. This future PE is lower than the current PE for the US Hospitality industry at 23.9x.
• Analysts expect the number of shares outstanding to grow by 7.79% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 10.74%, as per the Simply Wall St company report.

Risks

• Lower Volume Per Guest (VPG) for first-time buyers indicating softer demand or price sensitivity among new customers, potentially impacting contract sales revenue and profitability.
  
• Increased loan delinquencies leading to a higher sales reserve to cover expected defaults, affecting net margins by increasing credit loss expenses.
  
• Soft recovery in specific markets like Maui leading to downgraded contract sales expectations, which could negatively impact overall revenue growth.
  
• Anticipated increase in incentives to combat softening in VPGs may raise marketing and sales expenses, potentially reducing net margins.
  
• The external macroeconomic uncertainties and consumer caution after years of inflation could affect discretionary spending on travel and luxury services like vacation ownership, impacting revenue growth and earnings.

Valuation

• The analysts have a consensus price target of $89.85 for Marriott Vacations Worldwide 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 $136.0, and the most bearish reporting a price target of just $62.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $6.2 billion, earnings will come to $458.8 million, and it would be trading on a PE ratio of 11.4x, assuming you use a discount rate of 10.7%.
• Given the current share price of $79.75, the analyst's price target of $89.85 is 11.2% 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.