FIN501 Module 1 SLP1-Garavaglia

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FIN501 SLP 1 1 FIN501 SLP 1 Michelle Garavaglia Trident University International FIN501 Strategic Corporate Finance December 17, 2023
FIN501 SLP 1 2 FIN501 SLP 1 Established in 1992, Hilton Grand Vacations (HGV) is a company that operates in the timeshare industry. They specialize in developing, marketing, selling, and managing timeshare resorts and plans. Additionally, they offer ancillary reservation services to their customers. With decades of experience, HGV has established itself as a trusted name in the timeshare industry. They are dedicated to providing high-quality services and exceptional vacation experiences to their customers (Simply Wall Street, 2023) Since I own a timeshare with HGV, I thought this would be the perfect opportunity to see what I am invested in. According to Yahoo Finance, this company's stock has a beta of 1.91, which is quite high (2023). This means that due to its elevated share price volatility, the company's stock price movements will be more pronounced compared to the market as a whole (Simply Wall Street, 2023). If the market turns bearish, the company's shares will likely experience a more significant decline than the rest of the market. Based on the magnitude of the beta, it is an elevated risk. The stock's high beta value has resulted in it trading at a lower price than the industry's Price-To-Earnings ratio (Simply Wall Street, 2023). However, its PE ratio of 13.3 is lower than the U.S. market value of 16.2 and significantly lower than the industry average of 20.06. This presents a potential opportunity for investors as the stock is trading at a comparatively cheaper price when compared to its peers and may be indicative of the company's strong fundamentals and potential for growth (Simply Wall Street, 2023) The stock hit a 52-week low of $33.14 and reached a high of $51.81 (Simply Wall Street, 2023). Over the past five years, HGV earnings have grown at an average annual rate of 6%.
FIN501 SLP 1 3 However, in the last year, there was a decrease in earnings growth by 7.4%. On the other hand, the Hospitality industry witnessed a surge in earnings growth rate by 19.5% annually, and the revenues have been growing at an average rate of 21.4% per year (Simply Wall Street, 2023). Although the net debt-to-equity ratio of 162% is high, it has reduced from 237.7% to 175.4% in the past five years. Operating cash flow only covers 7.9% of debt (Simply Wall Street, 2023) One reason for its high debt is due to the recent acquisition of Bluegreen Vacations Holding Corporation (NYSE:BVH) for $1.5 billion on November 5 (Simply Wall Stret, 2023). Their beta value is 2.21 (Yahoo Finance, 2023). This all-cash transaction includes a net debt of $900 million (Seeking Profits, 2023). The deal has been set to close during the first half of 2024. The company is taking on debt to pay over 100% of the premium for BVH, with highly aggressive constructive collaboration targets. Hilton Grand Vacations shares have fallen over 20% since August and continue to decline, turning negative over the past year (Seeking Profits, 2023). The company's Q3 earnings were mixed, with adjusted earnings per share slightly lower and revenue falling short. A mixed quarter, combined with a mergers and acquisition announcement, sent shares down 8%. One of HGV's biggest competitors is Marriott Vacations Worldwide (VAC), whose beta value is 1.85 (Yahoo Finance, 2023). Over the past year, the stock has traded much higher than HGV, with a low of $72.78 and a high of $165.85 (Google Finance, 2023) On the other hand, the company's shares have experienced a significant decline, plummeting over 38% in value within the last year (Seeking Profits, 2023).
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FIN501 SLP 1 4 Marriott Vacations Worldwide acquired Welk Resorts and its properties for almost $430 million in 2021. Welk Resorts operated eight resorts and was one of North America's largest independent and family-owned timeshare companies (KY3 Staff, 2021). HGV and Marriott Vacations Worldwide function like credit card companies, issuing unsecured funds at high rates and deriving most of their revenue from financing charges (Seeking Profits, 2023). I can relate to this personally. In 2018, when my family and I got our timeshare, we were ecstatic and did not realize the interest rate was 17%. Like credit card companies, timeshare companies now face more delinquencies and defaults. So far this year, HGV loan loss receivables are $46 million, up from $32 million last year (Seeking Profits, 2023). It carries about $470 million in reserves against its $1.82 billion time-share receivables. The core business of vacation ownership is deteriorating (Seeking Profits, 2023). This can be seen by its declining sales and sales and marketing fees. Sales of timeshares fell by a third to $367 million, and sales and marketing fees decreased by $7 million to $170 million. The companies are facing other challenges, such as the wildfires in Maui. Luckily, the properties have not been damaged, but occupancy is down. Also, inflation makes the macro-environment less suitable for selling new timeshares. After researching HGV and Marriott, I would prefer to invest in HGV if I had to choose one. In reality, I would not buy stock in any timeshare after seeing how bad they are all doing. They already have my money as an owner, which is enough for me.
FIN501 SLP 1 5 References Google Finance. (2023, December 8). Marriott Vacations Worldwide Corp . Retrieved from Google Finance: https://www.google.com/finance/quote/VAC:NYSE?hl=en KY3 Staff. (2021, January 31). Marriott Vacations Worldwide to acquire Welk Resorts properties, including Branson site, for $430 million . Retrieved from KY3 : https://www.ky3.com/2021/01/31/marriott-vacations-worldwide-to-acquire-welk- resorts-properties-including-branson-site-for-430-million/ Seeking Profits. (2023, November 8). Hilton Grand Vacations: Questionable M&A Makes Shares Unattractive . Retrieved from Seeking Alpha: https://seekingalpha.com/article/4648977- hilton-grand-vacations-earnings-questionable-acquisition-makes-stock-unattractive Seeking Profits. (2023, November 2). Marriott Vacations: An Ugly Q3 With Problems Likely To Persist . Retrieved from Seeking Alpha: https://seekingalpha.com/article/4646413- marriott-vacations-an-ugly-q3-with-problems-likely-to-persist Simply Wall Street. (2023, December 8). Hilton Grand Vacations . Retrieved from Simply Wall Street: https://simplywall.st/stocks/us/consumer-services/nyse-hgv/hilton-grand- vacations Simply Wall Street. (2023, December 6). Is Hilton Grand Vacations Inc. (NYSE:HGV) Potentially Undervalued? Retrieved from Simply Wall Street: https://simplywall.st/stocks/us/consumer-services/nyse-hgv/hilton-grand-vacations/ news/is-hilton-grand-vacations-inc-nysehgv-potentially-undervalue
FIN501 SLP 1 6 Simply Wall Stret. (2023, November 5). Hilton Grand Vacations Inc. (NYSE:HGV) entered into a definitive agreement to acquire Bluegreen Vacations Holding Corporation (NYSE:BVH) from a group of shareholders for $1.3 billion. Retrieved from Simply Wall Street: https://simplywall.st/stocks/us/consumer-services/nyse-hgv/hilton-grand-vacations/ event/1861068426 Yahoo. (2023, December 8). Hilton Grand Vacations Inc. (HGV) . Retrieved from Yahoo Finance: https://finance.yahoo.com/quote/HGV/? guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig =AQAAABAUHUXWldcC6ALX0XWYS3hwEsrrU_IRf_oA2SHo- egIHQosHeWc7cZNjEoVmbW0ft6JrgymhyaNam-hvBoHnYpzsCCBJ7QZ- H1svBH8VSvl68F3LrTUJ597ykSjVIXZZUBZz-x7- Yahoo Finance. (2023, December 8). Bluegreen Vacations Holding Corporation (BVH) . Retrieved from Yahoo Finance: https://finance.yahoo.com/quote/BVH?p=BVH&.tsrc=fin-srch Yahoo Finance. (2023, December 8). Marriott Vacations Worldwide Corporation (VAC) . Retrieved from Yahoo Finance: https://finance.yahoo.com/quote/VAC?p=VAC&.tsrc=fin-srch
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