MVC stock down

[DannyTS]

What do you think about the 52% drop of MVC since January 29th, 2018? It is very steep especially when compared with an "only" 7.7% decline for S&P 500 during the same period.

 

[bazzap]

I am not sure quite how much one can read into this though, especially when the likes of Apple can lose some 30% of market value in barely 3 months?

 

[vol_90]

This will put some pressure on the sales reps. I have been through multiple presentations where they have referenced the VAC stock price, the money they make investing in the stock and another reason to purchase points on the strength of MVCI. I believe an extended downturn in the market will limit cashflow for buyers of timeshares. Unknown whether this will be an extended downturn or a short correction. Best of luck in the stock market to all!

 

[Luvtoride]

Maybe we should be buying VAC stock instead of timeshares...at least there may be some upside potential.


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[DannyTS]

Maybe we should be buying VAC stock instead of timeshares...at least there may be some upside potential.


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An interesting idea is to hold the stock to mitigate the never-ending increase of fees

 

[CalGalTraveler]

It's interesting that VAC started declining more rapidly after the acquisition. However, this is also the same time the market started becoming more volatile with jitters over potential downturn. Could be an industry trend because HGV is also down.

 

[vacationtime1]

The travel industry -- and especially the timeshare industry -- is highly cyclical. If analysts believe a recession is coming, they will infer that VAC and HGV profits will drop and will sell company shares accordingly.

What I don't know (and what lazy analysts may not know) is what fraction of VAC or HGV profit comes from managing timeshare properties as opposed to developing new properties. If most income came from management, profits would be less affected.

 

[CalGalTraveler]

What's scary is that they may seek more profits from owner fees and exchanges rather than new property sales and rental revenue that suffer in a downturn.

How did they respond during the last recession?

On the positive side, a downturn would be a great time to get some fire-sale deals on that property you have been eyeing or elite program you've been desiring.

 

[bogey21]

If my memory is correct VAC and Facebook both went public about the same time at about the same $30 per share price...

George

 

[vacationtime1]

What's scary is that they may seek more profits from owner fees and exchanges rather than new property sales and rental revenue that suffer in a downturn.

How did they respond during the last recession?

Great question.

Was Marriott's Destination Club created in response to the Great Recession or is it a coincidence in timing? Marriott was able to generate income without selling expensive timeshares by instead charging ~$600 - $2,000 to enroll legacy units (price depended on whether purchase was developer or resale and whether single or multiple units).

But that was Marriott, not VAC. That income was a blip on Marriott's overall income at the time but would be substantial for VAC today.

 

[bogey21]

Duplicate

 

[TravelTime]

The stock market is way down this year.

On a different subject, I read an interesting Wall Street Journal article yesterday. This might be of interest to Tuggers exchanging financial information.

https://www.wsj.com/articles/for-th...s-uninformed-as-you-1544195745?mod=hp_jr_pos1

Article reports on research that concluded the following:

People with low financial acumen tend to learn more and make better decisions about money if they solicit advice from peers who have similar levels of financial knowledge rather than people who are more financially sophisticated.​

 

[Fasttr]

The stock market is way down this year.

Not really true. The Dow and S&P are down less than 1.5% and the NASDAQ is up a little over 1.5% for the year. It just seems way down because its taken a steep hit lately.

 

[TravelTime]

Not really true. The Dow and S&P are down less than 1.5% and the NASDAQ is up a little over 1.5% for the year. It just seems way down because its taken a steep hit lately.

Yes the overall average for Dow and Nasdaq is teetering between a loss and a small gain. S&P is still way down.

If you look at many prominent individual stocks, many are way down this year on trade fears, interest rate increases and a possible economic slowdown. It looks like the hotel sector is down this year, although Disney is still doing well.

 

[pedro47]

The stock market is down the last quarter of 2018. Now is the time to purchase stocks.
Buy when it is low and sell when it is high.

 

[DannyTS]

this is an interesting article, it seems that the market is concerned about the debt of the company. I am wondering if this is not overblown though. An important part of the revenue is recurring and owners will continue to pay MF, exchange and visit/ spend money at the resorts.

If the new combined program (I am hypothesizing) is going to be a success and many Vistana and Hyatt owners will pay to enroll, they can make a nice chunk of money that they can use to pay down debt. They may ask the Marriott owners for a small fee to "upgrade" (be able to use DP at Vistana resorts), for example $250.



https://www.fool.com/investing/2018/05/17/marriott-vacations-ilg-acquisition-follows-a-famil.aspx

The Hitch in Marriott Vacations' Acquisition of ILG
The deal offers a plethora of advantages, but shareholders should still question one aspect of the transaction.

Asit Sharma
(TMFfinosus)
May 17, 2018 at 5:40PM

Announced on April 30th, Marriott Vacations International Corp.'s (NYSE:VAC) impending acquisition of competitor ILG Inc. (NASDAQ:ILG) holds much for shareholders of the combined company to admire. The transaction forms a vacation rentals powerhouse, which will instantly leapfrog Hilton Grand Vacations Inc. (NYSE:HGV) to become the second largest time-share purveyor by revenue in the industry, second only to Wyndham Worldwide Corporation's (NYSE:WYN) subsidiary Wyndham Vacation Ownership. The $2.8 billion in projected post-closing annual revenue will grow on a combined base of 160 vacation ownership properties worldwide, supported by 650,000 vacation share owners.

The deal joins Marriott Vacation's respected labels (which include its namesake, as well as the Ritz-Carlton vacation and St. Regis vacation brands) with ILG's Vistana Signature Experiences and Hyatt Vacation Ownership brands. Other advantages include annual expected cost synergies of $75 million, which are expected to be realized in just two years.

There are few obvious disadvantages to the tie-up, yet Marriott Vacations shareholders haven't really embraced the concept. Marriott Vacations stock has declined approximately 13% since the announcement at April's end.

Perhaps investors are keen to take a little money off the table. As I discussed back in February, the company's shares have been on a tear over the last several quarters, and asking if they're overvalued is a legitimate question in 2018.

It's also possible that a prominent aspect of this deal has caused some advocates to fret. That is, the combined entity will operate under a significant debt load once the merger completes later this year.

IMAGE SOURCE: GETTY IMAGES.

More debt than meets the eye
If you're willing to take a very broad view of balance sheet leverage, you're probably fine with Marriott Vacations' ballpark, pro-forma estimate of debt-to-EBITDA of roughly 3 times. This means after the two companies complete their merger, their combined borrowings will equal three times annual earnings before interest, taxes, depreciation, and amortization. Pro-forma EBITDA is projected at $737 million annually.

Still, there are several caveats to consider. First, the calculation excludes non-recourse debt on both company's books. Non-recourse debt, used extensively in the real-estate industry, gives the borrower the ability to walk away from an obligation -- in exchange for leaving behind the collateral. In this case, collateral would typically be represented by some of the combined company's properties.

It's fine for Marriott Vacations to exclude non-recourse debt from their calculation, since ultimately, the company doesn't have to honor those specific obligations if it so chooses. But this would be highly unusual, and to this point, credit ratings service Moody's asserts that Marriott Vacations has already indicated it will honor the non-recourse debt ILG has on its books.

Second, Marriott Vacations' debt to EBITDA is presented on a "net debt" basis -- in other words, outstanding debt has been reduced by available cash on hand. Again, there's no problem in presenting debt this way, but to get an apples-to-apples benchmark, we would first want to look at debt on a gross, not a net, basis.


By my calculations, if we include non-recourse debt and view all borrowings on a gross basis, the new entity will carry debt of $2.1 billion. Add in an estimate of financing that Marriott will need to close the deal, roughly $2.0 billion, and total debt to EBITDA is closer to 5.5 times. That's a considerably steeper reading, more fairly described as high leverage than moderate leverage.

Of course, the merged company will enjoy fairly strong cash flow, and management has already stated that debt reduction will be a priority going forward. But a more realistic view of the projected balance sheet illuminates the need for a bit of caution around these shares.

So, if you like the concept of these two formidable companies joining forces, but are concerned about Marriott Vacations' still relatively rich valuation, it may be prudent to wait a few quarters until the transaction completes.

At that point, the financing to complete the deal can be analyzed to understand the effect of new debt service and higher interest expense on cash flow and future earnings. In sum, a union of Marriott's and ILG's assets should present a rewarding investment opportunity. But there's nothing wrong with exercising patience in order to buy in at a fair price.




Asit Sharma has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Moody's. The Motley Fool owns shares of Marriott Vacations Worldwide. The Motley Fool has a disclosure policy.

 

[SueDonJ]

Great question.

Was Marriott's Destination Club created in response to the Great Recession or is it a coincidence in timing? Marriott was able to generate income without selling expensive timeshares by instead charging ~$600 - $2,000 to enroll legacy units (price depended on whether purchase was developer or resale and whether single or multiple units).

But that was Marriott, not VAC. That income was a blip on Marriott's overall income at the time but would be substantial for VAC today.

That MI was working on a points-based product was rumored for years prior to its inception, long before the timeshare segment was spun off and long before the recession impacted Weeks sales to the extent that it did (although those factors probably influenced deadlines throughout the development and roll-out processes.) I've always believed that MI's push to points was a result of their competitors (Disney's DVC being at the forefront but others as well) attaining success with their points products.

 

[SeaDoc]

12/21/2018 - VAC continues on a downward trend to $62.52, which is now at a new low, not seen since October 2016... No wonder the sales techniques have become unbearable for those of us who are asked to participate... Desperation is in the air...

 

[DannyTS]

The sales people should also be more frustrated than ever because they cannot address the biggest question of all: how is the integrated product Vistana MVC gonna look like. I guess a lot of owners, potential buyers, would rather wait to see the details rather than spending $$$$ on some very vague promises.

With the stock down 60% I am sure the management is under pressure to come with some clarity in the very near future.

 

[dioxide45]

I think most of the concern and what investors are building in to the price is rising interest rates and the heavy debt load that ILG brings. Higher rates means that the costs to renew that debt will be higher. The feds just increased the fed funds rate the other day and there will likely be two more increases next year. The market doesn't like expensive money.

 

[DannyTS]

I think most of the concern and what investors are building in to the price is rising interest rates and the heavy debt load that ILG brings. Higher rates means that the costs to renew that debt will be higher. The feds just increased the fed funds rate the other day and there will likely be two more increases next year. The market doesn't like expensive money.

i think you are absolutely right. There is also the wealth effect caused by the stock market. People spend more when their assets rise but they tend to cut more when they go down. And the most affected by personal budget cuts are airlines, home improvements and hotels.
So it may be like a double whammy for VAC.

 

[JIMinNC]

Some portion of the VAC decline is the general market decline we've seen since early October that has taken down all stocks - Apple is down 35%, Netflix is down 41% (sadly I own both). VAC has been hit harder at down 60% because it was already down 34% when the market peaked in early October. I suspect all the reasons dioxide45 mentioned about debt load factor in, but also, the market is telling us growth is likely to slow considerably in 2019, and more and more, it's looking like a recession could be in the offing in late 2019 or early 2020. If that happens, discretionary stocks like VAC will get hammered even more. If the economy does go into recession, I think we'll easily see VAC under $50/share, maybe much lower. In 2019 it's been 10 years since the last recession. We've had the longest uninterrupted growth string ever - we're due.

 

[TravelTime]

12/21/2018 - VAC continues on a downward trend to $62.52, which is now at a new low, not seen since October 2016... No wonder the sales techniques have become unbearable for those of us who are asked to participate... Desperation is in the air...

There is not usually a correlation between stock price and employee performance. I doubt this is why the sales techniques are aggressive. Plus the decline is way too soon to influence performance. Also, you are assuming employees have stock. In most mainstream companies, few employees own company stock.

 

[JIMinNC]

There is not usually a correlation between stock price and employee performance. I doubt this is why the sales techniques are aggressive. Plus the decline is way too soon to influence performance. Also, you are assuming employees have stock. In most mainstream companies, few employees own company stock.

I think SeaDoc was implying that as the stock price declines, management from the top down pressures the sales team to grow/maintain sales. The sales reps feel the pressure to make sales to boost earnings (which impacts stock price), so resort to more desperate "techniques."

 

[TravelTime]

Some portion of the VAC decline is the general market decline we've seen since early October that has taken down all stocks - Apple is down 35%, Netflix is down 41% (sadly I own both). VAC has been hit harder at down 60% because it was already down 34% when the market peaked in early October. I suspect all the reasons dioxide45 mentioned about debt load factor in, but also, the market is telling us growth is likely to slow considerably in 2019, and more and more, it's looking like a recession could be in the offing in late 2019 or early 2020. If that happens, discretionary stocks like VAC will get hammered even more. If the economy does go into recession, I think we'll easily see VAC under $50/share, maybe much lower. In 2019 it's been 10 years since the last recession. We've had the longest uninterrupted growth string ever - we're due.

The good news is that while Apple and Netflix are way down, they are still doing a lot better than many other companies. At least Apple is only back to where it was about a year ago and Netflix still has not lost all of this year’s value. Some other stocks like VAC and many others are really getting hammered.