• November 28, 2022

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Travel + Leisure sells timeshares, a sort of vacation pass that allows travelers to book an apartment—not a hotel room, mind you—around the country and the world. There’s a strong case that its vacation properties will thrive in the years ahead, given people’s revived wanderlust. While a recession (which almost everyone expects to hit next year) could crimp its growth temporarily, Wall Street projects an upward trajectory ahead.

Travel + Leisure, previously known as Wyndham Destinations, is the largest of the timeshare providers, in terms of locations and revenue. The stock, like everything else in the lodging biz, is down. The S&P 500 Hotels, Resorts and Cruise Lines sub-category is off 25% in 2022, per Yardeni Research. T+L is down by almost 30%.

Offsetting this is the timeshare provider’s robust buyback program, with over $24 million in shares repurchased in the year’s first nine months, and an attractive dividend yield of 4%. Credit Suisse, which rates the company’s stock as “outperform,” comments in a report that its return on capital is “the most compelling part of the story.”

But T+L, with a trailing price/earnings ratio of just 9.6, is cheaper than its two biggest competitors: Marriott Vacations Worldwide (24) and Hilton Grand Vacations
HGV
(13.8). The latter two are spinoffs from the big iconic hotel chains. Perhaps because of their parents’ greater name recognition, they sport higher multiples.

This all spells a value play for Travel + Leisure equity investors. In other words, now is a good time to scarf up T+L stock on the cheap, with a decent chance that it will climb in the future.

To be sure, the entire timeshare industry has suffered under a funky reputation. Many owners complained that scheduling was too inflexible, and often they were locked into one property. But consolidation of the industry has made it easier to switch among a large array of properties globally, and T+L has 245 of them.

The timeshare business is doing well these days: It has $10.2 billion in yearly revenue, eclipsing that of Major League Baseball ($7 billion) and music ($8 billion), according to the American Resort Development Association – Resort Owners’ Coalition, the timeshare trade group.

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The new way of timeshares, which T+L embodies, allows you to book an apartment all over the U.S., Europe and other places. For the privilege, you must pay a one-time entry fee and a yearly maintenance; in T+L’s case, that’s $21,000 upfront and $725 annually to start.

Sound expensive? Consider that average hotel rate in London or Orlando, both around $175 per night, or $2,450 for two weeks. If you need another room for the kids, double that. Over time, your cost for a timeshare versus a hotel quickly amortizes both your upfront and annual outlays to T+L. What’s more, with the timeshare alternative, you get a whole apartment, with several bedrooms, a kitchen, a living room—plus maid service.

Despite the stock slide, T+L has been putting up some impressive results. One metric, called volume per guest, or VPG (revenue per guest divided by total ownership sales), has burgeoned 5% this year. And that’s 45% higher than in pre-pandemic 2019.

“The strength in VPG reflects the value our consumer sees in the timeshare product, with strong relative value to hotel and alternative accommodations,” said Michael Brown, T+L’s president and chief executive officer, in announcing third quarter earnings Thursday.

Moreover, earnings jumped by almost a third for the first three quarters, versus the comparable 2021 period, and for the third quarter, 5%. For the recent quarter, revenue was up 12%. Like everyone else in the travel and leisure business, T+L ran red ink in 2020, with the onset of the coronavirus, as revenue was cut in half. It since has rebounded very well.

Brown joined the company in 2017, after a long career in the lodging business, including a stint as chief operating officer at rival Hilton Grand Vacations. In June 2018, he led his new firm’s evolution to Wyndham Destinations as an independent public company, spinning off its hotel division and retaining the timeshare and vacation exchange businesses. In early 2021, he bought the T+L brand from publishing colossus Meredith for $100 million. Brown took over the publisher’s timeshare assets, and Meredith continues to put out the well-known magazine, Travel + Leisure.

Nowadays, Orlando-based timeshare company T+L is in a pretty good position competitively. The beauty of its situation is that revenues are predictable and consistent. With 833,000 timeshare owners in its three vacation clubs—Club Wyndham, WorldMark and Margaritaville Vacation Club—there is a strong loyalty to the brand: Retention is 98%. What’s more, some two-thirds of its sales are to millennials and GenXers, which speaks well of its future.

After the pandemic lockdown, Americans thirst to travel. That should ensure plenty of business for T+L going forward.

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