New Resorts In Hawaii, Thailand, Bali, And Nashville Will Attract More Travelers

Key Takeaways

• Expansion in leisure travel markets and new sales initiatives are expected to drive revenue growth and positively impact future earnings.
  
• Business modernization and exchange segment growth aim to improve operational efficiencies, reduce costs, and enhance EPS through cash returns to shareholders.
  
• Economic pressures, rising acquisition and G&A costs, and changes in rental dynamics could pressurize Marriott Vacations Worldwide's revenue and net margins.

Catalysts

A vacation company, engages in the vacation ownership, exchange, rental, and resort and property management businesses in the United States and internationally.

• Expansion in leisure travel markets, especially with new resorts in Hawaii, Thailand, Bali, and the upcoming Marriott Vacation Club in Nashville, is expected to drive revenue growth through increased occupancy and higher average daily rates.
  
• Initiatives to enhance sales reach, such as virtual tours, nontraditional sales channels, and a focus on first-time buyers, are anticipated to boost contract sales and revenue, positively impacting future earnings.
  
• The business modernization efforts aim to enhance operational efficiencies and accelerate growth through increased automation, improved inventory management, and optimized procurement, which should reduce costs and improve net margins.
  
• The Exchange & Third-Party Management segment expects growth opportunities by expanding the global exchange network with more inclusive resorts and improving customer interaction through technology, potentially increasing revenue and margins.
  
• The focus on returning cash to shareholders through dividends and share repurchases, combined with generating additional adjusted EBITDA from the modernization initiatives, is projected to positively impact earnings per share (EPS).

Marriott Vacations Worldwide Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Marriott Vacations Worldwide's revenue will grow by 18.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.7% today to 7.1% in 3 years time.
• Analysts expect earnings to reach $383.4 million (and earnings per share of $9.0) by about March 2028, up from $218.0 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 12.2x on those 2028 earnings, up from 10.5x today. This future PE is lower than the current PE for the US Hospitality industry at 23.3x.
• Analysts expect the number of shares outstanding to decline by 0.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Marriott Vacations Worldwide Future Earnings Per Share Growth

Risks

• Economic pressures faced by customers could impact spending on vacations, potentially affecting future revenue and contract sales.
  
• Increasing marketing and sales costs to acquire new buyers could pressure net margins, especially as acquisition costs for first-time buyers are higher.
  
• Financing profit may be impacted by higher borrowing costs, which could reduce overall earnings.
  
• A higher mix of rental inventory in lower ADR markets and the expiration of COVID-related rental programs may lead to a decline in rental profits, impacting overall revenue.
  
• G&A expenses are expected to rise due to higher incentive compensation and increased technology spending, which may pressure net margins and earnings.

Valuation

• The analysts have a consensus price target of $99.455 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 $140.0, and the most bearish reporting a price target of just $78.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.4 billion, earnings will come to $383.4 million, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 11.4%.
• Given the current share price of $65.56, the analyst price target of $99.45 is 34.1% 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.