Intrinsic value of Marriott Vacations Worldwide - VAC

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$104.42

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$104.42

 
Intrinsic value

$78.61

 
Up/down potential

-25%

 
Rating

sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of VAC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -1.04
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,811
  1,847
  1,890
  1,938
  1,993
  2,053
  2,119
  2,192
  2,270
  2,354
  2,444
  2,541
  2,644
  2,754
  2,871
  2,994
  3,126
  3,265
  3,411
  3,567
  3,731
  3,903
  4,086
  4,278
  4,481
  4,694
  4,918
  5,155
  5,404
  5,665
  5,941
Variable operating expenses, $m
 
  1,627
  1,665
  1,708
  1,756
  1,809
  1,867
  1,931
  2,000
  2,074
  2,153
  2,239
  2,329
  2,426
  2,529
  2,638
  2,754
  2,876
  3,006
  3,142
  3,287
  3,439
  3,600
  3,769
  3,947
  4,135
  4,333
  4,541
  4,761
  4,991
  5,234
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,586
  1,627
  1,665
  1,708
  1,756
  1,809
  1,867
  1,931
  2,000
  2,074
  2,153
  2,239
  2,329
  2,426
  2,529
  2,638
  2,754
  2,876
  3,006
  3,142
  3,287
  3,439
  3,600
  3,769
  3,947
  4,135
  4,333
  4,541
  4,761
  4,991
  5,234
Operating income, $m
  225
  220
  225
  231
  237
  244
  252
  261
  270
  280
  291
  302
  315
  328
  342
  356
  372
  388
  406
  424
  444
  465
  486
  509
  533
  559
  585
  613
  643
  674
  707
EBITDA, $m
  246
  241
  246
  252
  259
  267
  276
  285
  296
  306
  318
  331
  344
  359
  374
  390
  407
  425
  444
  464
  486
  508
  532
  557
  583
  611
  640
  671
  704
  738
  773
Interest expense (income), $m
  23
  26
  27
  28
  29
  31
  33
  35
  37
  39
  41
  44
  47
  50
  53
  56
  60
  63
  67
  72
  76
  81
  86
  91
  97
  102
  108
  115
  122
  129
  136
Earnings before tax, $m
  223
  194
  198
  203
  208
  213
  219
  226
  233
  241
  250
  258
  268
  278
  289
  300
  312
  325
  338
  353
  368
  384
  400
  418
  437
  456
  477
  499
  521
  545
  571
Tax expense, $m
  86
  52
  53
  55
  56
  58
  59
  61
  63
  65
  67
  70
  72
  75
  78
  81
  84
  88
  91
  95
  99
  104
  108
  113
  118
  123
  129
  135
  141
  147
  154
Net income, $m
  137
  142
  145
  148
  152
  156
  160
  165
  170
  176
  182
  189
  196
  203
  211
  219
  228
  237
  247
  258
  268
  280
  292
  305
  319
  333
  348
  364
  381
  398
  417

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  147
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,391
  2,289
  2,342
  2,402
  2,469
  2,544
  2,626
  2,716
  2,813
  2,917
  3,029
  3,149
  3,276
  3,413
  3,557
  3,711
  3,873
  4,045
  4,227
  4,420
  4,623
  4,837
  5,063
  5,301
  5,552
  5,816
  6,095
  6,388
  6,696
  7,020
  7,361
Adjusted assets (=assets-cash), $m
  2,244
  2,289
  2,342
  2,402
  2,469
  2,544
  2,626
  2,716
  2,813
  2,917
  3,029
  3,149
  3,276
  3,413
  3,557
  3,711
  3,873
  4,045
  4,227
  4,420
  4,623
  4,837
  5,063
  5,301
  5,552
  5,816
  6,095
  6,388
  6,696
  7,020
  7,361
Revenue / Adjusted assets
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
Average production assets, $m
  102
  103
  106
  109
  112
  115
  119
  123
  127
  132
  137
  142
  148
  154
  161
  168
  175
  183
  191
  200
  209
  219
  229
  240
  251
  263
  275
  289
  303
  317
  333
Working capital, $m
  0
  -150
  -153
  -157
  -161
  -166
  -172
  -178
  -184
  -191
  -198
  -206
  -214
  -223
  -233
  -243
  -253
  -264
  -276
  -289
  -302
  -316
  -331
  -347
  -363
  -380
  -398
  -418
  -438
  -459
  -481
Total debt, $m
  737
  767
  802
  842
  886
  936
  990
  1,049
  1,113
  1,182
  1,256
  1,335
  1,420
  1,510
  1,605
  1,707
  1,814
  1,928
  2,048
  2,175
  2,310
  2,451
  2,601
  2,758
  2,924
  3,099
  3,283
  3,476
  3,680
  3,894
  4,120
Total liabilities, $m
  1,484
  1,513
  1,548
  1,588
  1,632
  1,682
  1,736
  1,795
  1,859
  1,928
  2,002
  2,081
  2,166
  2,256
  2,351
  2,453
  2,560
  2,674
  2,794
  2,921
  3,056
  3,197
  3,347
  3,504
  3,670
  3,845
  4,029
  4,222
  4,426
  4,640
  4,866
Total equity, $m
  908
  776
  794
  814
  837
  863
  890
  921
  953
  989
  1,027
  1,067
  1,111
  1,157
  1,206
  1,258
  1,313
  1,371
  1,433
  1,498
  1,567
  1,640
  1,716
  1,797
  1,882
  1,972
  2,066
  2,165
  2,270
  2,380
  2,495
Total liabilities and equity, $m
  2,392
  2,289
  2,342
  2,402
  2,469
  2,545
  2,626
  2,716
  2,812
  2,917
  3,029
  3,148
  3,277
  3,413
  3,557
  3,711
  3,873
  4,045
  4,227
  4,419
  4,623
  4,837
  5,063
  5,301
  5,552
  5,817
  6,095
  6,387
  6,696
  7,020
  7,361
Debt-to-equity ratio
  0.812
  0.990
  1.010
  1.030
  1.060
  1.080
  1.110
  1.140
  1.170
  1.200
  1.220
  1.250
  1.280
  1.300
  1.330
  1.360
  1.380
  1.410
  1.430
  1.450
  1.470
  1.490
  1.520
  1.530
  1.550
  1.570
  1.590
  1.610
  1.620
  1.640
  1.650
Adjusted equity ratio
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  137
  142
  145
  148
  152
  156
  160
  165
  170
  176
  182
  189
  196
  203
  211
  219
  228
  237
  247
  258
  268
  280
  292
  305
  319
  333
  348
  364
  381
  398
  417
Depreciation, amort., depletion, $m
  21
  21
  21
  22
  22
  23
  24
  25
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  63
  67
Funds from operations, $m
  25
  162
  166
  170
  174
  179
  184
  190
  196
  202
  210
  217
  225
  234
  243
  253
  263
  274
  285
  297
  310
  324
  338
  353
  369
  386
  403
  422
  441
  462
  483
Change in working capital, $m
  -115
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Cash from operations, $m
  140
  267
  169
  174
  178
  184
  189
  195
  202
  209
  217
  225
  234
  243
  252
  263
  274
  285
  297
  310
  324
  338
  353
  369
  385
  403
  421
  441
  461
  483
  505
Maintenance CAPEX, $m
  0
  -20
  -21
  -21
  -22
  -22
  -23
  -24
  -25
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -63
New CAPEX, $m
  -35
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
Cash from investing activities, $m
  39
  -22
  -23
  -24
  -25
  -25
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
  -66
  -68
  -72
  -76
  -78
Free cash flow, $m
  179
  245
  146
  150
  154
  158
  163
  168
  173
  179
  185
  192
  199
  207
  215
  224
  233
  242
  252
  263
  274
  286
  299
  312
  326
  341
  356
  372
  390
  408
  427
Issuance/(repayment) of debt, $m
  54
  30
  35
  40
  45
  49
  54
  59
  64
  69
  74
  79
  84
  90
  96
  101
  107
  114
  120
  127
  134
  142
  149
  157
  166
  175
  184
  194
  204
  214
  225
Issuance/(repurchase) of shares, $m
  -218
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -171
  30
  35
  40
  45
  49
  54
  59
  64
  69
  74
  79
  84
  90
  96
  101
  107
  114
  120
  127
  134
  142
  149
  157
  166
  175
  184
  194
  204
  214
  225
Total cash flow (excl. dividends), $m
  4
  275
  181
  189
  198
  207
  217
  227
  237
  248
  259
  271
  284
  297
  311
  325
  340
  356
  373
  390
  409
  428
  448
  470
  492
  515
  540
  566
  593
  622
  652
Retained Cash Flow (-), $m
  68
  -15
  -18
  -20
  -23
  -25
  -28
  -30
  -33
  -35
  -38
  -41
  -43
  -46
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -73
  -77
  -81
  -85
  -90
  -94
  -99
  -104
  -110
  -116
Prev. year cash balance distribution, $m
 
  147
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  407
  163
  169
  175
  182
  189
  197
  204
  213
  221
  231
  240
  251
  262
  273
  285
  298
  311
  325
  340
  355
  372
  389
  407
  426
  446
  467
  489
  512
  536
Discount rate, %
 
  5.50
  5.78
  6.06
  6.37
  6.69
  7.02
  7.37
  7.74
  8.13
  8.53
  8.96
  9.41
  9.88
  10.37
  10.89
  11.43
  12.01
  12.61
  13.24
  13.90
  14.59
  15.32
  16.09
  16.89
  17.74
  18.62
  19.56
  20.53
  21.56
  22.64
PV of cash for distribution, $m
 
  385
  146
  142
  137
  132
  126
  119
  113
  105
  98
  90
  82
  74
  66
  58
  50
  43
  37
  31
  25
  20
  16
  13
  10
  7
  5
  4
  3
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Marriott Vacations Worldwide Corporation develops, markets, sells, and manages vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. The company also develops, markets, and sells vacation ownership and related products under The Ritz-Carlton Destination Club brand; and holds right to develop, market, and sell ownership residential products under The Ritz-Carlton Residences brand. It sells points-based vacation ownership products through Marriott Vacation Club points-based ownership programs focused in North America and the Asia Pacific; and weeks-based vacation ownership products. As of December 30, 2016, the company operated 60 properties with 13,318 vacation ownership villas and approximately 400,000 owners in the United States, and 8 other countries and territories. In addition, it is involved in financing consumer purchases of vacation ownership products; and renting vacation ownership inventory. The company sells its upscale tier vacation ownership products primarily through a network of resort-based sales centers and off-site sales locations. Marriott Vacations Worldwide Corporation is headquartered in Orlando, Florida.

FINANCIAL RATIOS  of  Marriott Vacations Worldwide (VAC)

Valuation Ratios
P/E Ratio 20.6
Price to Sales 1.6
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 20.1
Price to Free Cash Flow 26.8
Growth Rates
Sales Growth Rate -1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.8%
Cap. Spend. - 3 Yr. Gr. Rate 9.7%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 81.2%
Total Debt to Equity 81.2%
Interest Coverage 11
Management Effectiveness
Return On Assets 6.3%
Ret/ On Assets - 3 Yr. Avg. 5.3%
Return On Total Capital 8.2%
Ret/ On T. Cap. - 3 Yr. Avg. 6.5%
Return On Equity 14.5%
Return On Equity - 3 Yr. Avg. 11.2%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 58%
Gross Margin - 3 Yr. Avg. 56%
EBITDA Margin 14.7%
EBITDA Margin - 3 Yr. Avg. 13.5%
Operating Margin 12.4%
Oper. Margin - 3 Yr. Avg. 11.1%
Pre-Tax Margin 12.3%
Pre-Tax Margin - 3 Yr. Avg. 10.8%
Net Profit Margin 7.6%
Net Profit Margin - 3 Yr. Avg. 6.3%
Effective Tax Rate 38.6%
Eff/ Tax Rate - 3 Yr. Avg. 41.8%
Payout Ratio 24.8%

VAC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VAC stock intrinsic value calculation we used $1811 million for the last fiscal year's total revenue generated by Marriott Vacations Worldwide. The default revenue input number comes from 2016 income statement of Marriott Vacations Worldwide. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our VAC stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.5%, whose default value for VAC is calculated based on our internal credit rating of Marriott Vacations Worldwide, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Marriott Vacations Worldwide.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of VAC stock the variable cost ratio is equal to 88.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for VAC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Marriott Vacations Worldwide.

Corporate tax rate of 27% is the nominal tax rate for Marriott Vacations Worldwide. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the VAC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for VAC are equal to 5.6%.

Life of production assets of 4.8 years is the average useful life of capital assets used in Marriott Vacations Worldwide operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for VAC is equal to -8.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $908 million for Marriott Vacations Worldwide - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 27.219 million for Marriott Vacations Worldwide is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Marriott Vacations Worldwide at the current share price and the inputted number of shares is $2.8 billion.


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COMPANY NEWS

▶ Is Marriott Vacations Worldwide Corp (VAC) a Good Stock to Buy?   [Dec-13-16 09:11AM  at Insider Monkey]
▶ New York firm partners with Marriott on hotel-conversion project   [Sep-07-16 09:20PM  at bizjournals.com]
▶ Earnings, Other News Have These 5 Stocks In Motion Today   [Jul-21-16 01:46PM  at Insider Monkey]
Stock chart of VAC Financial statements of VAC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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