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Will Marriott Vacations' (VAC) Bull Run Continue in 2020?

Marriott Vacations Worldwide Corporation’s VAC digital initiatives, innovations, cost synergies and share repurchase program bode well.

Notably, in third-quarter 2019, the company’s revenues surged 51.9%, following 79.5% gain in the preceding quarter. Robust top line continues to impress investors, which is evident from the company’s share price movement. So far this year, Marriott Vacations’ shares have gained 84.8%, outperforming the industry’s 37.8% growth. However, high expenses and debt pressure remain potential concerns.

 

 

Growth Drivers

In a bid to compete with the changing nature of consumer demand, Marriott Vacation has been focusing on digital expansion and innovation of latest techniques. To this end, in the second quarter, the company launched its digital marketing program with Marriott, which will allow users of Marriott.com to receive attractive offers and promotions. Following the shift to more efficient marketing channels, the company’s tour package pipeline grew 11% year over year in the third quarter of 2019.

Marriott Vacations is also venturing opportunities in other social media and digital advertising platforms. Management is excited to further integrate data analytics into the company's marketing strategy.

The company completed the acquisition of ILG, Inc., a provider of professionally delivered vacation experiences in September 2018.  It continues to realize greater cost synergies from the ILG acquisition. In fact, management expects to realize merger cost synergies of $125 million by the end of 2021.

Overall, Marriott Vacations expects to recognize $45-$50 million in savings in 2019 and a $60 million synergy run rate by the end of the year. Notably, the final $50 million of synergies include leveraging and consolidating technology applications, HR and payroll platforms, and financial & analysis integration. Additional savings will be derived from sales and marketing.

Meanwhile, the company’s share repurchase program continues to drive shareholder value. In the third quarter of 2019, Marriott Vacations repurchased an additional 4.3 million shares.  For 2019, it expects adjusted free cash flow to be $440-490 million. Further, it continues to expect cash flow generation in 2019 to support sales growth.

Concerns

Despite cost synergies from the ILG acquisition, the company has been bearing the brunt of high expenses. In 2018, total expenses rose 39.4% year over year due to an increase in the cost of vacation ownership products as well as high rental, financing and administrative costs. Total expenses in the third quarter amounted to $924 million, up 50.5% year over year.

As Marriott Vacations is highly capital intensive, it faces a lot of debt burden. Owing to a higher debt burden, the company might fail to finance the upcoming projects. Its total net debt outstanding at the end of the third quarter was roughly $3.9 billion, consisting primarily of $2.3-BILLION corporate debt, most of which resulted from the ILG acquisition and $1.7 billion associated with non-recourse securitize notes receivable.

Marriott Vacations is continuously facing intense competition from large hotel chains and smaller independent local hospitality providers. While its competitors like Choice Hotels International, Inc. CHH, Hilton Worldwide Holdings Inc. HLT and Hyatt Hotels Corporation H are pursuing aggressive global expansion strategies, Marriott Vacations seems to be weak on this front.

Marriott Vacations carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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Choice Hotels International, Inc. (CHH): Free Stock Analysis Report
 
Hilton Worldwide Holdings Inc. (HLT): Free Stock Analysis Report
 
Marriot Vacations Worldwide Corporation (VAC): Free Stock Analysis Report
 
Hyatt Hotels Corporation (H): Free Stock Analysis Report
 
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