Vail Resorts (MTN) is an American mountain resort company with a strong presence in Colorado. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Seven Springs Acquisition
Vail recently entered into an agreement to acquire Seven Springs Mountain Resort. Seven Springs is the largest ski resort in Pennsylvania, with 285 skiable acres and a 418 room slopeside hotel.
The acquisition is anticipated to generate an annual EBITDA of $15 million, presenting an operating yield per year of 12%. This is a very lucrative return as a commercial property asset tends to yield 8%-10% during a good year.
Key Metrics
Because Vail is an acquisition vehicle, it’s more helpful to look at individual yields of its properties instead of making inferences based on the stock’s price/earnings ratio.
I’ve witnessed many analysts who judge acquisition vehicles based on price multiples, but it’s not useful doing so because growth assets will almost always be acquired at premiums, meaning that the holding company’s price/earnings ratio will generally be artificially inflated.
If we examine the stock’s sales/CapEx ratio of 14.5x, it’s safe to conclude that Vale’s operating results are far superior to its asset allocation. Substance could be added to the argument if it’s considered that the firm’s operating cash flow and return-on-equity have grown by 156.1% and 114% apiece during the past year.
According to its key metrics and the nature of its business Vail Resorts is a definite growth stock. This is a reopening pure-play with a bright future.
An Opportunity to Take Advantage of the Dip
The market has recently sold off stocks with high costs of capital. This means that short-sellers have been actively seeking stocks whose future earnings will be affected by rising interest rates.
I do believe that Vail stock as a target for short sellers is transitory; the company’s cost of capital spiked up to 9.3% during the earlier stages of the pandemic, assumably due to debt restructuring and an increased risk environment in the equity market.
However, Vail’s long-run average cost of capital is 7.4%, and if the firm’s current level of 8.6% could revert to its mean, we’d likely see investors consider it a low-cost-of-capital company.
The stock has evidently dipped recently, with an RSI of around 40, meaning that investors could take advantage of a relatively low price entry point at the moment.
Wall Street’s Take
Wall Street analysts are generally bullish on MTN stock. It sports a Moderate Buy consensus rating based on two Buys and three Holds ratings assigned in the past three months.
The average Vail Resorts target price target is $349.40, presenting an upside opportunity worth 8.5%.
Concluding Thoughts
Vail Resorts stock is set for upside as a reopening play. The company’s acquisition of Seven Springs allows it to expand on its growing resort portfolio. In addition, key metrics indicate that the stock could be headed for hypergrowth.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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