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On Tuesday, Marriott Vacations Worldwide (NYSE:VAC) shares received an updated stock rating from Morgan Stanley (NYSE:MS), moving from Underweight to Equalweight. The firm reduced the price target for the company’s stock from $67.00 to $57.00. The stock currently trades near its 52-week low of $49.22, having declined over 40% year-to-date according to InvestingPro data. The reassessment by Morgan Stanley comes after observing several ongoing challenges within the company.
Morgan Stanley noted that their initial Underweight rating was influenced by concerns over potential consensus shortfalls stemming from higher provisions and the need for increased inventory investment, which could affect the company’s stock multiple. Throughout the fourth quarter of 2024, elevated provisions persisted, and Marriott Vacations highlighted forthcoming free cash flow (FCF) headwinds due to inventory purchases. Despite these challenges, InvestingPro analysis shows the company maintains strong liquidity with a current ratio of 3.34, indicating sufficient assets to meet short-term obligations.
The firm’s analysts project that the challenges faced by Marriott Vacations will continue, leading them to set their EBITDA estimates for 2025 and 2026 at 6% and 7% below the consensus, respectively. This outlook incorporates expected outcomes such as lower net Vacation Ownership Interest (VOI) sales due to the elevated provision, increased marketing and sales costs from targeting first-time buyers, and reduced financing profit due to higher borrowing costs.
Despite Morgan Stanley’s cautious stance, they recognize that the market has already factored in these headwinds. This is evidenced by Marriott Vacations’ stock underperforming its peers by 24% year-to-date. The company’s enterprise value to EBITDA (EV/EBITDA) multiple currently stands at 10.45x, trading near the bottom of its pre-pandemic range, while its P/E ratio of 9.5x is significantly lower than average. InvestingPro research indicates the stock is currently undervalued, with additional analysis available in the comprehensive Pro Research Report, which covers over 1,400 US stocks.
The firm also highlighted that Marriott Vacations’ enterprise value has now dropped below the levels observed during the lowest points of the COVID-19 pandemic, standing at $7.0 billion compared to $7.6 billion in June 2020. This valuation change reflects the market’s adjustment to the various financial pressures facing the company. Despite these challenges, InvestingPro Tips highlight that VAC has maintained dividend payments for 12 consecutive years and currently offers a significant dividend yield of nearly 6%.
In other recent news, Marriott Vacations Worldwide Corporation announced a strategic refinancing of its credit facility, securing an $800 million senior secured revolving credit facility and a $450 million delayed-draw term loan facility. The new revolving credit facility, which replaces a previous $750 million facility, is set to mature in 2030, offering improved interest rates and financial flexibility. Additionally, the delayed-draw term loan is designated to fund the redemption or repurchase of the company’s convertible senior notes due in 2026. Analyst firms have provided varied assessments, with Citizens JMP maintaining a Market Outperform rating and a $115 price target, citing strong fourth-quarter earnings that exceeded expectations. Barclays (LON:BARC) reiterated its Overweight rating with a $97 price target, noting potential upside from the company’s business modernization efforts despite credibility challenges. Mizuho (NYSE:MFG) Securities adjusted its price target to $112 from $120, maintaining an Outperform rating but highlighting unexpected challenges impacting future projections. These developments reflect Marriott Vacations’ efforts to strengthen its financial position and navigate market conditions.
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