Vail Resorts Selling Cheaper but Not Cheap Enough

The frigid weather across the country may bode for a great ski season, but Vail Resorts (NYSE: MTN  ) isn't having the best start to winter. The highly seasonal business nearly always loses money in its fiscal first quarter as, obviously, there is no snow for the company to exploit, but this year's first quarter came in at a steeper loss than expected. The name of the game for this capital-intensive business is acquisitions, which were the main culprit for the greater-than-usual loss along with some litigation fees. As long as the company is buying attractive properties at a good price, this short-term loss is of little concern to investors. Let's see if that's the case.

Earnings slope
Vail Resorts, the management company behind its namesake resort and Heavenly in Lake Tahoe, among others, has focused increasingly on using the other seasons beyond just winter. While it's an uphill battle, the company is seeing some success, as its Mountain Unit saw sales grow by 10% in the quarter to $57.3 million. Season pass sales for the current quarter have drifted up 13% as of Dec. 7.

On the top line, the company brought in 6% higher sales in the quarter -- $123.4 million. Analysts expected around $121 million. On the bottom line, however, the company lost $2.04 per share, partially due to the Canyons (Park City, Utah) acquisition and some minor ski resorts in the Minneapolis area. Wall Street was looking for a loss of $1.91 per share.

Good conditions
A few macro elements look favorable for Vail. The snow season, as your canceled flights will tell you, is looking to be much, much stronger than last year's relatively weak showing. Western and Eastern resorts are already getting dumped on and could create a long, bountiful season.

As Credit Suisse recently noted, the high-end consumer is still high-end -- feeling little of the pang that has afflicted lower-income consumer spending habits. Skiing is an expensive vacation, and thus has some insulation from the market at large.

Vail's presence as a major resort operator with a rock-solid asset base gives it some seriously attractive qualities that one seeks in a long-term investment, but investors need to keep an eye on valuation.

The company trades around 40 times its forward earnings estimate. Even with the favorable growth prospects, that is one mighty premium to pay for. While the company is improving its portfolio with bolt-on acquisitions, prospective investors aren't getting any bargain, to say the least.

Vail Resorts is a good company with a fantastic moat. The sell-off this week was largely irrelevant, as the company is investing in its long-term success. But by no fault of its own, the stock is unappealing at its current price.

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