An unexpected move from resort operator Vail Resorts (MTN) saw the company jump 6.7% in premarket trading earlier today. However, the gains haven’t held up so far, as the stock is now down 0.35%. Unexpected marketing successes and reopening states gave the resort operator new life.
I’m shifting to neutral on Vail Resorts, however, because the reopening effect that’s hitting Vail Resorts right now may not last too long. That’s especially true given the impacts of inflation and a potential recession on the horizon.
The last 12 months for Vail Resorts would unnerve a black diamond skier. The company is down substantially from its November highs of around $370 per share. The resurgence the company saw this morning, meanwhile, puts it solidly above the $250 per share mark.
The latest news for Vail Resorts gave the company new life, at least for the moment. Vail Resorts’ earnings report posted $9.16 per share in earnings, though that didn’t quite mesh with the Zacks consensus calling for $9.17 per share. The company did, however, post a win for revenue, coming in at $1.18 billion for the quarter against $1.16 billion projected by Zacks.
A combination of reduced lockdown restrictions and successful marketing efforts that targeted patrons during the off-season combined to produce the results in question.
Wall Street’s Take
Turning to Wall Street, Vail Resorts has a Hold consensus rating. That’s based on two Buys and four Holds assigned in the past three months. The average Vail Resorts price target of $308 implies 25.95% upside potential.
Analyst price targets range from a low of $274 per share to a high of $383 per share.
Investor Sentiment is a Jagged Slope as Well
The fact that Vail Resorts currently has a Smart Score of 5 out of 10 on TipRanks is actually perfectly representative of investor sentiment right now. It’s balanced perfectly between underperforming and outperforming the broader market. When it comes to investing in this company, every con seems to have a pro to offset it.
For instance, there’s the matter of hedge fund involvement. The TipRanks 13-F Tracker shows that hedge funds reduced their MTN holdings once again, this time by 35,900 shares. Worse yet, this is part of an ongoing pattern. Hedge funds have been reducing their involvement with Vail Resorts every quarter since June 2020.
However, insider trading is a different story. So far this year, there have been only two instances of insider trading, and both of these were Buy transactions. Going back to the last 12 months, meanwhile, shows some selling activity, but not that much. Buy transactions led Sell transactions by 20 to 11. In an odd twist, August 2021 featured 18 Buy transactions.
Retail investors, particularly those who hold portfolios on TipRanks, are with the hedge funds. TipRanks portfolios that held Vail stock were down 0.1% in the last seven days but down 1.8% in the last 30 days.
Finally, there’s Vail Resorts’ dividend history. It’s getting back on track. Vail sat out most of 2020 and 2021 in dividends. That’s largely due to the pandemic and the impact the various restrictions had on operations.
However, a gradual comeback started in 2021. The most recent dividend payout actually represents a small improvement on the last pre-pandemic dividend of March 2020.
A Triple-Black-Diamond Investment
The investor sentiment measures here are all shockingly balanced. Every negative measure is seemingly offset by a positive measure. The worst part is that that is exactly what’s going on in a macroeconomic sense as well.
See, Vail Resorts is in an odd place. The company made a great recovery through a combination of reduced lockdowns and excellent marketing to draw the off-season customer. It worked. Yet, here’s the problem: it may not work again.
Vail managed to pull a lot of that “pent-up demand” that we heard about extensively throughout 2021. People were finally allowed by law to leave the house, and they went to all the places they’d longed to go since they were shut up in their houses watching movies online. It’s not surprising that “ski weekends” came to mind for plenty of people.
That pent-up demand might well have kept going if not for two factors: soaring inflation is reducing people’s ability to cover costs of such things as ski weekends, especially when they’re dumping more cash in the gas tank and the grocery bag. Further, the looming potential for a recession is making consumers increasingly skittish.
Roughly three weeks ago, TransUnion offered a report noting that home equity lines of credit (HELOCs) were on the rise at the end of 2021. Not long after that, Vail saw its traffic start to climb. It would be ridiculously oversimplifying matters to say that people were taking out HELOCs to go skiing. However, that may be at least part of the picture.
We also know that credit card debt is back to record levels. Consumers deleveraged intensively during the pandemic, dropping $83 billion in debt. With the reopenings, however, those balances came surging back. April saw credit card levels hit $1.103 trillion, breaking the record of $1.1 billion established before the pandemic.
Basically, the consumer is tapped out or close to it. That’s going to weigh heavily on Vail Resorts and other such entertainment destinations that depend on disposable income.
However, Vail may be able to make up for those losses on the backs of high earners, who generally aren’t affected by the cycle of recession and recovery the way that the middle class is.
Vail itself, meanwhile, isn’t resting on its laurels. The company has set aside big money—as much as $325 million—to augment its customer experience with more lift capacity, terrain expansion projections, and analytics functions to derive insight into what guests want in their Vail experience. That’s going to help it, assuming anyone can pull together the cash to go.
Concluding Views
Vail is a coin flip. That’s why I’m neutral, in a nutshell. Every positive indicator for Vail is offset by a negative indicator in almost flawlessly equal measure.
The company is trading below its lowest price targets, offers an attractive dividend, and its insiders seem to heavily believe in the company’s future. Sufficiently heavily, in fact, to put their collective money where their mouth is.
However, the company is also losing the confidence of hedge funds and investors alike. The macroeconomic picture is not on its side even in the slightest. Vail Resorts could crumble like a mountain in an earthquake if a recession actually hits. Based on the growing likelihood of a stagflationary recession at that, the picture only worsens.
So if you already have Vail stock, maybe hang on to it. It might do all right in the days ahead. There’s a solid case here for the company coming out the other side intact. However, buying in may not be the best plan because there are a lot of red flags out on this black diamond stock.
