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Marriott's Timeshare Business Is Looking Great

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It may be surprising to hear that hospitality and tourism are the fastest-growing industries in the world. One of the biggest names in the industry, unsurprisingly, is Marriott, which represents a variety of names in hotels, motels, and resorts around the world. As a spin-off from Marriott In late 2011, Marriott Vacations Worldwide (NYSE: VAC  )  is a business that specializes in vacation ownership, otherwise known as timeshares. While thoughts of the quintessential timeshare salesman may bring a sting to your gut, this business offers investors bright prospects on the back of a booming industry. Here's what you need to know about Marriott Vacations.

(Time)Shares up
Marriott Vacations posted impressive earnings last week, with second-quarter profits up sixfold, and revenues growing in the double digits.

Specifically, the company delivered $421 million in sales -- up 10% from $383 million in the year-ago quarter. The Street was expecting in the low 400s, giving investors a cause to rally the stock to its highest price since the IPO in November 2011.

At the bottom of the income statement, things looked even better -- Marriott Vacations posted adjusted earnings of $0.73 per share. This came in substantially higher than the year-ago earnings of $0.33 per share, and far above Wall Street estimates of $0.48 per share. Management credits the growth to increased demand and a favorable mix of inventory.

Marriott Vacations holds two valuable names in the hospitality industry -- the namesake, Marriott Vacation Club, and its premium sister, Ritz Carlton Destination Club. The recent success of the two brands led management to bump up full-year guidance to $1.94 -$2.10 per share, up $0.07 on either end from previous estimates.

Clearly, the company has prospered since its separation from the mothership, but can industry tailwinds continue to push this stock higher?

Future planning
Some investors were concerned with the company's lower year-over-year contract sales and tour volumes -- elements that suggest business will soften going forward. However, as noted by Cantor Fitzgerald, the company's strategies have boosted margins, as evidenced by the 8% growth in room efficiencies and shifts in owner preferences. Investors should also note that the lower contract sales were mainly a matter of closing underperforming sales centers in the Asia-Pacific region.

With the exception of some softness in Europe, the company appears to be firing on all cylinders. 

On a free cash flow basis, the company is expecting in the neighborhood of $120 million to $135 million. This implies a P/FCF of 11.63 times, to 13.08 times. Marriott Vacations is the only current pure play timeshare stock (there is another on the way -- Diamond Resorts International), which makes comps somewhat difficult. And, despite its fantastic growth since its IPO, Marriott Vacations does not appear to be overvalued, especially given the long-term outlook for the industry. The company has found ways to cut costs, as the separation from Marriott International is further and further in the rear view. These efforts should continue to save money over the next few years, especially on a tax basis.

Trading at over 18 times forward earnings, Marriott Vacations is slightly more expensive than its parent company, but the bottom line is that substantial growth tailwinds and wise management make this a compelling play for investors.


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Read/Post Comments (4) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 26, 2013, at 3:54 PM, barbie15fletcher wrote:

    Timeshares are one of the top sellers in the travel and hospitality industry. Thousands are available and millions of people "own" them. But that doesn't mean timeshares are a good idea. An article on tells us that timeshares are generally marketed and sold to people who really can't afford them. So if you think you can afford it, you can't. Even if you really think you can, your money is better off in a cookie jar. The average cost of a timeshare in the U.S. is $14,500. If you put that money in a mutual fund averaging 12% over 10 years, you would have almost $48,000. Pretty good. In 20 years, you would have over $178,000. Even better, in 40 years, you would have over $1.7 million! That's a lot of free money! Hope you like the vacation house! Throwing money at a timeshare is not an investment and will not generate money for you. An investment implies that you can eventually sell it and make money. With timeshares, you're just pre-paying your hotel bill for the next 20 years whether or not you use it. This is a good article on how most timeshare companies work:

  • Report this Comment On August 09, 2013, at 1:17 AM, Erb2388 wrote:

    Your numbers are correct but your assumptions are way off. Most people finance timeshares; they don't drop $14.5k in one lump sum. And where are you finding mutual fund investments that are paying 12% per year? Finally, most people don't think of their timeshares as financial investments but as investments in rest, relaxation and sanity. And while there is most certainly an opportunity cost to timeshare investment, most people are looking to beat the ever increasing cost of travel and vacationing and not looking to fund retirements through timeshare ROI.

  • Report this Comment On June 01, 2014, at 12:29 PM, pbillions wrote:

    The finance fees are as high as unsecured credit like a credit card. Even worse move.

  • Report this Comment On August 31, 2014, at 9:09 AM, atomicityllc wrote:

    The decision to purchase vacation club points can be difficult. The only way to determine if vacation club ownership represents a good value is to perform a financial analysis. This requires comparing costs associated with vacation club ownership with the costs of the alternative - paying retail costs for lodging fees. Before I purchased vacation club points, I created a spreadsheet to determine if there was a financial benefit associated with vacation club ownership. The spreadsheet was so helpful that I decided to create an application so that I could analyze future vacation club purchases. This application is called PointsCruncher and is located here: <a href="" target="_blank">PointsCruncher</a>. I hope it helps make vacation club ownership decisions a bit easier.

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