The popularity of winter sports is center stage at the Olympics, as fans cheer on skiing legends Mikaela Shiffrin and Lindsey Vonn and snowboarding stars Chloe Kim and Shaun White.
Three leading advisors and contributors to MoneyShow.com, are also fans of Vail Resorts (MTN) , the largest owner and operator of ski resorts in North America.
Jimmy Mengel, The Crow’s Nest
The winter isn’t all about avoiding the freezing cold and grievous injuries; it’s also about embracing them. I’m talking about skiing (or snowboarding, if you’re one of those guys or gals).
There’s nothing quite as exhilarating in the winter as hurling yourself downhill at extreme speeds with nothing between you and the ground but a couple of boards under your feet.
Another great thing about skiing is that it is typically a wealthier person’s sport, which makes it more recession-proof than other entertainment industries. A bad economy isn’t going to stop rich snow bunnies from descending on Vail. And that is precisely where I would be putting my money.
Vail is the largest owner and operator of ski resorts in North America. And these are premium resorts. They are gorgeous — and in high demand.
The company operates in three segments: The mountain segment operates 11 mountain resorts, including Vail, Beaver Creek, Breckenridge, and Keystone resorts in Colorado; Park City Mountain resort in Utah; Heavenly, Northstar, and Kirkwood in the Lake Tahoe area of California and Nevada; Whistler Blackcomb in Canada; Stowe Mountain Resort in Northern Vermont; and Perisher in Australia, as well as three urban ski areas, such as Wilmot Mountain in Wisconsin, Afton Alps in Minnesota and Mount Brighton in Michigan. These are all high-end properties that have international appeal.
The lodging segment owns and/or manages various luxury hotels and condominiums under the RockResorts brand and other lodging properties; various condominiums located in proximity to the company’s mountain resorts; destination resorts; and golf courses; as well as resort ground transportation services. This segment operates approximately 4,700 owned and managed hotel and condominium units.
If you are booking a ski trip, it only makes sense that you stay close to the lifts. The real estate segment owns, develops and sells real estate properties in and around the company’s resort communities.
As you can tell, Vail Resorts is a pretty straight-up business: buy premium land, set up ski slopes and put up rental properties surrounding them. Oh, and use your brand cachet to charge a hefty premium for your lift ticket, food and lodging.
While it may have a freewheeling casino strategy, Vail Resorts is a rather traditional dividend stock. It pays out a pretty high percentage of its earnings in dividends. For example, Vail paid out 65% of its earnings in dividends last year. But those high payouts haven’t resulted in dividend cuts. Over the past five years, Vail’s dividend rose at an average annual rate of 39%. Plus, it already pays a generous 1.9% dividend.
The stock itself had a great year in 2017. It was up 32%. But it has pulled back over the past month or two, which makes for a nice entry point.
Now, this is quite a seasonal play, and much of it depends on the weather. This year, for instance, the Vail resorts have seen a decline in visits due to historically low snowfall.
In November and December 2017, snowfall season in Vail, Beaver Creek and Park City (the company’s major locations) was the lowest level recorded in over 30 years, and in Vail and Beaver Creek snowfall was over 50% lower than the next lowest season, while Tahoe’s snowfall was 69% below the 20-year average.
As such, retail/rental revenue for North American resort store locations was down 11.5% compared to the prior year season-to-date period. Total skier visits were also down 10.8% compared to the prior year season-to-date period.
Yet the stock was still up — mostly due to the shrewd casino-style maneuvering I mentioned above. If it’s raking in money during historically low snowfall, I would stand to wager that it’ll rebound during the heavy winters that are sure to eclipse this one.
Vail is a stock you can hold for quite a while. Indeed, we could see it hit the $250 mark next year — along with a respectable 2% dividend yield if it keeps the hikes coming. We’re adding the stock to our model portfolio.
Brett Owens, Contrarian Outlook
Many investors are wondering if the selloff is truly over and whether now is the time to buy in. My answer is that trying to time the market is a recipe for losing money, it’s a great way to drive yourself mad.
Which is where my strategy comes in. It’s my favorite way to "time" the market, because it does everything for you. I’m talking about dollar-cost averaging.
If that name makes your eyes glaze over, good. Because this strategy is as boring as it sounds. You simply commit to buying a fixed dollar amount of a particular investment on a set schedule.
This "set-it-and-forget-it" approach is one of the best, and safest, ways to buy stocks. That’s because it delivers a steadier climb in the value of your investment than any market timer will ever see.
That’s not all, though. Because when you combine dollar-cost averaging with my favorite type of stock-one with an accelerating dividend, you get something truly special. That’s the case with Vail Resorts.
If there’s one stock that benefits from both millennials — and their lust for "experiences" over "stuff" — and well-heeled retirees, it’s Vail, which owns some of the main places skiers and snowboarders go to play. Besides Vail, they include Breckenridge, Beaver Creek and Canada’s Whistler Blackcomb, site of the 2010 Olympics and the most visited ski resort in North America, with more than 2 million visits a year.
There’s more growth ahead. Even though this ski season got off to a slow start in the western U.S., the company reports an improvement in January. But either way, Vail is pocketing rising revenue from its season passes, including its Epic Pass, a one-buy way to get into 46 different resorts across the globe.
The best part? Vail has a terrific record of shoveling cash out to investors: the shares yield 2%, but its payout is surging. Last March, Vail dumped a 30% dividend hike on shareholders, following a similar 30% increase the year before.
Some might point to the high payout ratio (dividends occupied 65% of the last 12 months of earnings). But you’re far better off looking at dividends as a percentage of free cash flow. On that basis, the ratio drops to just 38.6%, so Vail has room to deliver another double-digit hike this March.
For my latest investment idea, I’ve chosen to write about skiing. Before I start, for full disclosure, I own a condo in the Pan Pacific, located at the base of Whistler Mountain in Canada, which was purchased by Vail Resorts last year. It was that acquisition that inspired this Buy recommendation.
What makes this play interesting is that they have created a subscription model that is unique to the industry. Vail resorts offers a pass that allows you to use all their facilities at a price that is significantly below the price of other mountain passes. The breakeven is down to four days, which is a tremendous incentive to buy.
This model has done a number of things for the company. First, it has helped them gain share in the Colorado area as well as all other markets where they have competition. Second, they have locked in $500 million in revenue, having sold 740,000 passes last year.
This helps tremendously in years when the snow is poor, which it has been so far this season in Colorado and Tahoe. This essentially transfers the weather risk from the company to the consumer. The company also gets revenue from ski lessons and on mountain equipment sales.
I bought my pass in Vail last winter and used it in Whistler later in the year. I also used my pass to ride the gondola up to the peak of Blackcomb during the summer, which also helped monetize the pass even further.
That underscores the fact that all these resorts are busy during the summer, which has the effect of smoothing the revenue for the company to some degree. People are using the mountains to hike, mountain bike, golf, etc. and that keeps the restaurants and stores humming all year round, other than the shoulder seasons where they relay on corporate retreats and convention business.
Last year, net income increased by 40.6% to $210.6 million. EBITDA was $593.4 million, which was an increase of 31.1%. Season passes were up 17% in units and 23% in sales. Retail and ski revenue increased 24%. The company also has real estate to sell that generated $18.5 million in cash flow last year. These are tech company types of growth numbers.
It should be noted that skiing is an expensive sport so it caters to a high-end clientele, most of whom will benefit from the recent tax changes enacted in the U.S. The business should also profit from the tax changes but the company has not yet commented on the impact it will have on their results in 2018.
Having high-end clients also offers protection from potential economic downturns since people with enough money to go to Vail are usually not as affected by the vicissitudes of economic downturns. All in all, there is a lot to like about Vail Resorts.
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