Vail Resorts Inc. (NYSE: MTN) stock slid to start out the week after an analyst recently downgraded the stock. Although the shares have outperformed the market over the past six months, this one analyst thinks it is time for a pullback.
Janney Capital downgraded Vail Resorts from a Buy rating to Neutral with a price target of $260, implying a downside of nearly 6% from the most recent closing price of $276.07.
The firm thinks investors are overlooking several risks, including the financial impact of capacity restrictions and the potential for local jurisdictions to impose more stringent limits on operations. Janney thinks demand this season will skew more toward local visitors, which are less profitable than destination skiers
Janney goes into further detail:
We think it’s possible that new restrictions in local and feeder markets could negatively impact visitation and customer spend this season. In New Mexico, several ski resorts remain closed due to government orders to delay opening. Summit County (where Breck is located) is also increasing restrictions starting this weekend and will prohibit indoor dining. Commentary from local officials has not ruled out a mandate to close ski areas completely.
Separately, the firm has heard anecdotal evidence that initial reservation demand for several Vail destinations has been strong. However, Janney believes this is mostly irrelevant given capacity is capped on the mountain and because these customers have paid for their visits ahead of time. The firm also expects early strength is driven by local skiers, not destination guests.
We believe it’s possible more than 60% of the Vail Resorts cost structure is fixed. Though the company has already enacted cost savings and plans to operate at lower capacity, these fixed costs will hamper flow through. This could be exacerbated by lower destination visitation during shoulder periods. We also think mountains like Whistler, where 50% of visitation is from outside Canada, could drag down margin for the overall company. Our FY21 flow through lines up with management’s comments and results in FY09 and FY3Q20.
Vail Resorts stock traded down about 1% to $269.83 Monday morning, in a 52-week range of $125.00 to $300.00. The consensus price target is $242.40.
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