Categories Analysis, Leisure & Entertainment

Vail Resorts (MTN) can reward investors once it gets past market crisis

The management cautions that the situation might deteriorate in the coming weeks

The recent travel restrictions have taken a heavy toll on the tourism industry, leaving almost all destinations deserted. Vail Resorts Inc. (NYSE: MTN), a leading operator of mountain ski resorts, is witnessing a sharp fall in visitors, after a busy season.

The stock gained a whopping 10% soon after trading started on Monday and maintained the momentum throughout the session, even as major indexes rallied amid hopes that the COVID-19 situation is stabilizing. Earlier, the stock had plunged to a four-year low when the market went through a massive selloff.

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The management cautioned that the situation might deteriorate in the coming weeks and suspended dividend hikes until June. The question is will the company survive the current setback, which is temporary. Vail Resorts maintained a relatively healthy cash flow in the recent past and has a healthy debt-to-earnings ratio, which is reflective of its solid fundamentals.

Cautious View

At the beginning of the year, the company predicted a dip in visitations in the current quarter, citing the weak snowfall. In short, unfavorable weather conditions will also hold back visitors, in addition to the pandemic-related travel restrictions. The company follows the strategy of reinvesting in its resorts and expanding the terrains to enhance customer experience. The innovations should translate into shareholder returns.

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Addressing analysts at the second-quarter earnings call, CEO Robert Katz said, “We remain confident in the strong cash flow generation and stability of our business model.”

We will continue to be disciplined stewards of our capital and remain committed to strategic high-return capital projects, continuous investment in our people, strategic acquisition opportunities, and returning capital to our shareholders.

Robert Katz, CEO

Buy MTN?

While there is every reason to believe the company would regain momentum once the market stabilizes, a clear picture will emerge only when it publishes third-quarter results in early May. The management’s decision on dividend is bad news for existing shareholders, but it is only for a short period of time. Analysts, in general, are optimistic about the stock’s long-term prospects. That, together with the low valuation, makes it an attractive investment target.

Mixed Q2

The company responded to the growing uncertainty by withdrawing its full-year guidance, due to lack of clarity as to when operations would return to normalcy. Earnings moved up by two cents to 5.04 per share in the second quarter, aided by a 9% increase in revenues to $924 million. The numbers, however, fell short of expectation, weighing on shareholder sentiment.

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