Is Marriott Vacations Worldwide Overvalued?

Despite new marketplace turmoil, Marriott Vacations International Corp. (NYSE: VAC) hasn’t given meddlesome investors on a sidelines many of an entrance point. Shares of a vacation dilettante soared 59% final year, and they’re adult another 6% year to date. Let’s demeanour during a few parameters to try to establish if shares are still within a reasonable shopping range.


Marriott Vacations is a personality in a vacation tenure industry, some-more ordinarily famous as a timeshare industry. Spun off from Marriott International Inc. (NASDAQ: MAR) in 2011, a association binds general disdainful rights to develop, market, and sell vacation tenure products underneath several Marriott and Ritz-Carlton brands. Competitors embody ILG Inc. (NASDAQ: ILG), that licenses resorts underneath a Vistana Signature Experiences and Hyatt Vacation Ownership brands, and Hilton Grand Vacations Inc. (NYSE: HGV).

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The association sells vacation tenure interests in a form of genuine estate interests, called “timeshare estates,” as good as “timeshare licenses,” that are right-to-use interests. It owns 65 review properties in a U.S., and 9 additional properties abroad.

Similar to a competitors, Marriott Vacations derives income from 4 primary sources: sales of vacation tenure interests, review management, let of unsold inventory, and financing of patron purchases of vacation products. To get an suspicion of a relations significance of any service, following is a list of income covering a company’s initial 9 months of 2017. I’ve private a income line object called “cost reimbursements,” that washes out any entertain with an matching object on a responsibility side of a income statement.

Selling vacation time is a company’s many poignant service, though it has a easily diversified bottom of subordinate revenue, that helps furnish coherence in a tip line.

Marriott Vacations possesses several attributes that should be appealing to investors. The association has usually increasing a profitability given going public, branch distinction domain next 2% into annual distinction domain reliably in a 7% to 8% range.

It also enjoys a prolonged ramp of tellurian income potential, as a bulk of association sales issue from a United States. A pivotal area noted for growth is a Asia-Pacific region. Last month, Marriott Vacations non-stop an endless new review skill on a island of Bali, Indonesia, a Marriott Bali Nusa Dua Gardens. The classification intends to reap full advantage from a new sales core on a skill this year.

Management has also capitalized on flourishing seductiveness in timeshares outward of normal review properties, by a code called Marriott Vacation Club Pulse, that facilities timeshare tenure interests in civic areas. So far, a association has non-stop Marriott Pulse properties in Boston, New York City, San Diego, and Miami’s South Beach. Pulse has even taken adult a seventh building in Marriott International’s ancestral Mayflower Hotel in Washington, D.C.

Is Marriott Vacations pricey, or sincerely priced?

As for a company’s valuation, given we recently tackled a identical question with Marriott International, it’s usually satisfactory to use during slightest partial of a same approach, that is to review Marriott Vacations to an suitable zone in a altogether market.

As with a former parent, a consumer discretionary zone of a SP 500 Index provides an suitable benchmark. Consumer discretionary bonds in a SP 500 Index now trade during 20.4 times brazen earnings, according to Yardeni Research. Marriott Vacations is somewhat some-more costly than this set of companies, as a benefaction brazen price-to-earnings ratio reading sits during approximately 24.0.

Now, Marriott Vacations isn’t partial of a SP 500 — during a marketplace capitalization of $3.8 billion, it’s some-more of a mid-cap stock, distinct Marriott International, that is a member of both a SP 500 index and a index’s consumer discretionary sector. Thus, given it’s a comparatively smaller company, we’d design Marriott Vacations to trade during a slight reward to a SP zone benchmark.

We should also cruise a company’s gratefulness relations to a peers. Let’s review Marriott Vacation’s enterprise value (EV)-to-EBITDA mixed opposite Hilton Grand Vacations and ILG. we like this sold metric since it takes an entity’s sum value, including debt, and compares it to gain from that non-cash equipment have been removed.

Using a craving EV-to-EBITDA mixed can beget some-more of an apples-to-apples comparison between companies, notwithstanding differences in their change sheets. Here we see that a marketplace is requesting a slight bonus to Marriott Vacations contra Hilton Grand Vacations when noticed by a lens of EV-to-EBITDA:

By these dual measures, gratefulness relations to a extended set of consumer-based companies, and gratefulness relations to peers, we can establish that Marriott Vacations isn’t overvalued. More accurately, it can be suspicion of as sincerely valued during present. For investors who say plenty holding periods, a association might continue to yield plain earnings since of a unchanging income and enlargement potential. Thus, if we have a prolonged investment horizon, Marriott Vacation stays appealing during a stream cost level.

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Asit Sharma has no position in any of a bonds mentioned. The Motley Fool owns shares of Marriott Vacations Worldwide. The Motley Fool recommends Marriott International. The Motley Fool has a disclosure policy.

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