Expansion And Digital Initiatives Will Drive Future Success

Key Takeaways

• Expansion through digital and strategic initiatives is expected to drive revenue growth and improve net margins by enhancing customer satisfaction and operational efficiencies.
  
• Investments in new resorts and targeted sales strategies aim to increase contract sales, supporting revenue streams and earnings growth.
  
• Economic pressures and natural disasters pose significant risks to revenue and earnings, while reliance on existing owners may limit future growth.

Catalysts

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

• Marriott Vacations Worldwide is expanding its sales reach through targeted actions such as virtual tours, roadshows, and a new first-time buyer financing promotion. This is expected to drive revenue growth through increased contract sales and a higher number of first-time buyer tours, impacting overall earnings positively.
  
• The company is enhancing its digital infrastructure and transaction capabilities, which has already led to a substantial increase in online reservations. This digital transformation is expected to drive efficiencies and improve net margins by reducing operational costs and enhancing customer satisfaction.
  
• Marriott Vacations Worldwide is investing in new resorts, such as the 110-unit Waikiki Resort and a new Hyatt Vacation Club Resort in Orlando. These new projects are anticipated to generate significant contract sales within a few years, expanding revenue streams and supporting earnings growth.
  
• The establishment of a strategic business operations office aims to accelerate growth initiatives and drive an incremental $50 million to $100 million of annual efficiencies over the next two years. This focus on cost structure optimization and operational efficiencies is expected to enhance net margins and support earnings.
  
• The use of advanced data analytics and propensity models is helping improve marketing efficiency and targeting, which supports growth in first-time buyer sales and owner sales. This strategic use of data is likely to improve revenue and enhance net margins by increasing the effectiveness of sales initiatives.

Marriott Vacations Worldwide Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Marriott Vacations Worldwide's revenue will grow by 24.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.4% today to 6.1% in 3 years time.
• Analysts expect earnings to reach $378.1 million (and earnings per share of $9.05) by about December 2027, up from $203.0 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 15.6x on those 2027 earnings, down from 16.2x today. This future PE is lower than the current PE for the US Hospitality industry at 23.6x.
• Analysts expect the number of shares outstanding to grow by 6.15% 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.

Marriott Vacations Worldwide Future Earnings Per Share Growth

Risks

• Economic pressures such as rising interest rates and higher inflation may continue to challenge consumer spending on vacations, potentially affecting contract sales and revenue growth.
  
• The recent natural disasters, including Hurricanes Helene and Milton, and the impact of past events like the Maui wildfires, place the company at risk of incurring costs due to lost selling days and damaged properties, thereby impacting both revenue and net earnings.
  
• The company's reliance on increased sales from existing owners, mentioned to be nearly 70% of sales year-to-date, carries the risk of saturating this customer base, potentially limiting future sales growth and affecting revenue sustainability.
  
• Although the company has initiated cost-saving measures and intends to improve operational efficiencies, any delays or failures in execution of these strategies could lead to higher-than-expected costs, impacting net margins and overall profitability.
  
• The dynamic macroeconomic environment and the unpredictability of geopolitical events, such as potential future travel restrictions or economic downturns, present ongoing risks that could adversely affect the revenue and earnings outlook.

Valuation

• The analysts have a consensus price target of $105.5 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 $142.0, and the most bearish reporting a price target of just $80.0.
• 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 $378.1 million, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 10.9%.
• Given the current share price of $94.05, the analyst's price target of $105.5 is 10.9% 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.