Stock of the Week
Marriott Vacations Worldwide
Marriott Vacations Worldwide
NYSE Symbol: (VAC)
Industry: Time share hotels
Price as of 12/25/20: $134.05
The major averages are set to close out another record year even as the Covid-19 pandemic continues to spread around the country and globe. Money has started to rotate into out of favor sectors and stocks linked to the reopening of the global economies. The travel and leisure sectors may be one of the biggest benefactors of the reopening of the global economies. The online reservation company, Airbnb recently came public trying to capture investors' appetite for stocks benefitting from travel. However, with a market cap of $92 billion, Airbnb trades for 20 times next year's sales and is more valuable than the largest online travel company, Bookings Holdings and is worth more than Hilton and Marriot combined. Possibly another way to play the travel space is through a timeshare stock, Marriott Vacations Worldwide. A spinoff from Marriott hotels back in 2011, the stock has performed well of late and was included in a featured cover piece in Barron's over the weekend listing companies that will benefit from pent up demand for travel and leisure. Trading for less than two times sales and nearly break even profits due to a steady stream of fee income, Marriott Vacations could perform very well in the coming years.
While the pandemic crippled the cruise industry and decimated the business, group, and convention travel that some hotel companies rely on, the timeshare business for Marriott Vacations benefited from the resiliency of leisure travelers, many of whom drive to their respective resorts. Marriott's timeshare units are furnished and prepaid and typically bigger than hotel rooms, boasting features such as multiple bedrooms and a kitchen for family vacations during a pandemic so they don't have to go out for meals.
Back in 2018, Marriott Vacations Worldwide acquired ILG Holdings for $4.6 billion. The acquisition brought into the fold timeshare brands such as Hyatt, Westin, and Sheraton along with a marketplace that allows timeshare owners to swap vacation destinations globally. Marriott Vacations caters to an attractive socioeconomic customer base with high incomes insulating them to a degree during periods of economic uncertainty. Deals with Marriott Bonvoy credit card and Marriott International's loyalty program should provide further demand from their more than 40 million members in the coming years.
The reopening of the global economies are still probably several quarters away, but Marriott Vacations is ready to service customers when they are ready to get back out there and travel once again. With roughly 40% to 45% of their adjusted earnings before taxes coming from recurring sources such as maintenance contracts, Marriott Vacations should provide consistent earnings and growith in the coming years.
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