Why Did Investors Turn Bearish On Vail Resorts Stock?

The global macroeconomic recovery took a hit this year after Russia invaded Ukraine and crude oil prices jumped to unprecedented highs resulting in skyrocketing inflation. Notably, market indices are again trending lower as investors anticipate the war to have ripple effects on global trade and pinch discretionary spending. However, the shares of Marriott (NASDAQ: MAR) are trading 30% above pre-pandemic levels assisted by the asset light business strategy which is implemented by all major hotel brands. On the flipside, the shares of Vail Resorts (NYSE: MTN) returned to pre-pandemic levels after observing a strong rally during the latter half of 2021. The surge in Vail Resorts stock was driven by expanding sales of its advance ski passes which led to an anticipation of quick rebound in travel demand. Notably, Vail Resorts’ high long-term debt obligations have triggered a downside in its stock as bearish sentiments rule broader markets. Our dashboard Vail Resorts vs. Marriott: Industry Peers; With Return Forecast Of 40%, Vail Resorts Is A Better Bet details the fuller picture, parts of which are summarized below.

1. Revenue Growth

Vail Resorts’ growth was comparable to Marriott before the pandemic, with Vail Resorts’ revenues expanding at an annual rate of 12% from $1.6 billion in 2016 to $2.2 billion in 2019, versus Marriott’s revenues growing by 11% p.a. from $15.4 billion in 2016 to $20.9 billion in 2019. While Marriott and Vail Resorts observed a 50% and 14% top line contraction in 2020, respectively, Marriott reported a stronger recovery in 2021.

• In recent years, Vail Resorts’ top-line expansion was fueled by a series of acquisitions which led to a surge in skier visits. A skier visit relates to the number of people visiting the company’s mountain resort or regional ski area using a pass.
• Vail’s mountain and lodging services account for 85% and 15% of total revenues, respectively. Mountain services include a variety of services but lift tickets and pass products, which provide access to mountain resort, contribute nearly half of mountain revenues.
• Marriott’s management & franchise segment has been key to the company’s top line growth in recent years. Since 2016, the company’s total room portfolio observed a 24% growth, primarily assisted by the franchised & licensed segment which expanded by 41% during the same period.

2. Returns (Profits)

Coming to Returns, Marriott has a slight edge over Vail assisted by a higher operating cash margin and a similar topline growth.

• In 2021, Marriott reported an operating margin and net income margin of 13% and 8%, respectively. The company generated $1.2 billion of operating cash on revenues of $13.8 billion at an operating cash margin of 8.6%. Subsequently, it invested $183 million in property, plant & equipment and repaid $463 million of long-term debt.
• In 2021, Vail Resorts reported an operating margin and net income margin of 13% and 6.5%, respectively. The operating cash margin stood at 28% after adjusting of non-cash charges and working capital. With $525 million of operating cash, the company invested $115 million in capital expenses, and further increased its cash on hand by raising $575 million of long-term debt.
• Vail has been investing heavily in acquiring assets while Marriott has been selling owned properties to further its asset-light business strategy.

3. Risk

Vail looks like the riskier of the two companies from the perspective of financial leverage.

• In 2021, Marriott and Vail reported $13.8 billion and $1.9 billion of total revenues, respectively.
• The long-term debt on Marriott’s balance sheet was $9.3 billion as compared to $2.7 billion for Vail.
• Considering the high debt-to-revenue ratio of Vail resorts, the stock is a riskier pick from the perspective of financial leverage.