Vail Stock: Ski Season Is Here. A Pandemic Hasn’t Stopped MTN.

Though Covid-19 is sure to hamper international and U.S. air travel this year, you wouldn’t know that from looking at the stock. Vail shares have more than rebounded from a 52-week intraday low of $125. Following upbeat vaccine news from

Pfizer

and

Moderna,

Vail Resorts stock is now trading around $280. Vail’s enterprise value to fiscal 2022 estimated earnings before interest, taxes, depreciation, and amortization sits at a 17.72 times multiple, according to FactSet, near the top of its range in recent years.

The stock is up about 12% from 12 months ago, an impressive feat given analysts expect a net loss of $32 million for the current fiscal year that ends in July. Such gains are even more staggering when lined up against certain resort and leisure industry peers, especially theme parks and cruises, which are largely down on the year.

That doesn’t mean it’s time to place your bets against Vail stock—at least according to the analysts covering it. Of the 11 analysts listed by FactSet, none have a Sell rating, though nine have Neutral ratings. The mean price target of $276.67 is close to current levels.

CFRA analyst Tuna Amobi tells Barron’s he thinks there are still reasons to buy. Though he expects the company to take a hit in the current fiscal year, he notes that Vail’s liquidity position, with $614 million in cash on hand and $419 million in revolver availability, will help it weather the near-term storm and set it apart from many of the leisure travel names he covers. Vail said on Tuesday it’s raising about $500 million in convertible bond markets, and plans to use net proceeds for general corporate purposes.

Amobi has a Buy rating on the stock with a $300 price target. He places an enterprise value to Ebitda, or earnings before interest, taxes, depreciation, and amortization, multiple of 16.7 times his estimates for fiscal 2023.

Amobi points to Vail’s much-heralded Epic Pass program. The standard Epic Pass gives skiers access to dozens of mountain resorts, and limited access to select destinations like Telluride, Co., Sun Valley and Snowbasin in Utah, the Canadian Rockies, and Hakuba Valley and Rusutsu in Japan. Investors liken the pass to a subscription service that locks in a huge chunk of lift sales ahead of the season, creating value and loyalty among customers while negating some year-to-year variability from weather.

The Epic Pass’ biggest rival is the Ikon Pass from privately-owned Alterra Mountain Company. One advantage Vail has is it operates the majority of its passmember mountains. That enables unrivaled data collection that has helped the company better cater to guest preferences. The pass and related on-mountain mobile apps help the company track consumer habits, including vertical feet skied, spending habits, lifts used, and resorts visited.

David Baron, who co-manages the

Baron Focused Growth Fund

(BFGIX) and covers the stock for Baron Capital, tells Barron’s he expects Vail can return to a more normalized Ebitda by the end of July of 2022. While Baron notes a fiscal 2022 return to normalcy was likely priced into the stock, he expects the company to grow skier visits and leverage its pricing power to raise prices 4% to 5% each year.

“We continue to believe they should continue to grow their normalized Ebitda at a double digit rate, which when combined with a mid-single digit free cash flow yield should still generate a midteens return from here post recovery,” Baron says.

Baron Capital’s funds had a 11.2% stake as of Sept. 30, according to FactSet. It’s been a longtime holding: The Baron Asset fund (ticker: BARAX) has owned Vail stock continuously since 1997.

“These guys have made really smart acquisitions in the past,” Baron says, referring to the company’s slate of acquisitions over the years that includes the Whistler Blackcomb in Canada, the largest ski area in North America.

Most recently, Vail added 17 ski areas through its acquisition of the once publicly traded Peak Resorts. That deal helped bolster its Epic Pass program, adding customers in the New York metropolitan area that may be inclined to pay more to ski local and take trips to Vail’s other destination resorts out west. While lift tickets are included in the pass, the company racks up sales from those staying and eating at its resorts, as well as through ancillary services like lessons.

Asked during the December earnings call if Covid-19 could spur more attractive acquisitions, Vail CEO Rob Katz emphasized the company is focused on weathering the current storm, and positioning the company to seek opportunities thereafter.

Meanwhile, Amobi notes the upscale nature of Vail’s offerings may make it a bit more resistant to the economic disruption of Covid-19, which has adversely affected lower income populations. That seemed to play out in Vail’s most recent earnings report, which noted sales of the Epic Pass were up 20% this season, in terms of units. Sales dollars were flat, though, as the company offered credits for 2019-20 passholders whose seasons were cut short by the pandemic.

Credits ranged from 20% for those that used their 2019-20 pass on at least five days to 80% for those who didn’t use the pass at all. The company stopped selling its various Epic Passes for the 2020-21 season on Dec. 6, and those credits from last year expired in September. The company also offered pass insurance for things like illness, job loss, injury, and certain resort closures.

But the company saw “significant growth” in pass sales this year to people who weren’t in the company’s database. That group, Katz said during the earnings call, helped the company top its outlook from September, which called for units to be flat year over year.

The company is taking precautions to prevent the spread of Covid-19. Visitors to its resorts must wear a mask, social distance, and use a reservation system that prioritizes passholders. So far, the resorts are still running.

There is still plenty of near-term uncertainty for Vail. Janney Montgomery Scott analyst Tyler Batory lowered his rating on the stock to Neutral last month, though he raised his price target to $260. Batory pointed out risks of lower visitation amid the pandemic, additional statewide restrictions, and his expectation that a larger mix of local skiers would visit the slopes this year, rather than out-of-state travelers who tend to spend more on ancillary services.

“We also think mountains like Whistler, where 50% of visitation is from outside Canada, could drag down margin for the overall company,” Batory wrote.

Berenberg Capital Markets analyst Alex Maroccia lowered his rating on the stock to Hold from Buy on Wednesday, citing uncontrollable variables this ski season, including potential economic shutdowns to curb the spread of Covid. However, he raised his price target to $279 from $252 and noted that Vail has a “great long-term story,” and believes pass sales indicate a strong start to fiscal 2021.

Vail could also become an underrecognized beneficiary of the work-from-anywhere trend. During the December earnings call, Vail’s Katz pointed to what looked to be the strongest demand for its resort properties since 2008. He expects—even after restrictions end—that the technology will allow workplaces to continue to shift to video technology and online schooling to continue. There’s an opportunity for Vail if more consumers opt to work from vacation spots throughout parts of the year, particularly during off-peak periods.

“I think that could represent a major opportunity coming out of the Covid dynamic to the entire vacation industry, but particularly for our company,” Katz said.

In the near-term, with most Americans now cooped up in the cold, Vail Resorts offers one of the few viable vacation options remaining as the country eagerly awaits a return to normal. A mid-December snowstorm on the East Coast doesn’t hurt. For Vail, it’s just a matter of keeping the lifts running, and winning over guests long-term.

Write to Connor Smith at [email protected]