Credit Suisse On The Timeshare Sector: What's Not To Like?

Investors can find a lot to like about the timeshare industry, but that's doesn't mean every stock in the group is attractive, according to Credit Suisse.

The Analyst

Credit Suisse's Cameron McKnight initiated coverage of the following equities: 

• Marriott Vacations Worldwide Corp (NYSE: VAC) at Outperform with a $146 price target.
• Hilton Grand Vacations Inc (NYSE: HGV) at Outperform with a $48 price target.
• Bluegreen Vacations Corp (NYSE: BXG) at Neutral with a $22 price target.
• Wyndham Worldwide Corporation (NYSE: WYN) at Neutral with a $116 price target.

The Thesis

Investors may want to consider exposure to the timeshare industry for four reasons, McKnight said:

• Favorable macro tailwinds.
• Industry consolidation.
• An improving business practice.
• Higher returns.

Marriott Vacations

Marriott Vacations is Credit Suisse's top pick within the timeshare space for three reasons, McKnight said:

• An underappreciated upside story from the combination of the Marriott and Starwood loyalty programs.
• Expectations for upside to management's synergy guidance.
• An improved overall industry structure.

Hilton Grand Vacations

Similar to Marriott Vacations, the bullish case for Hilton Grand Vacations' stock is threefold, the analyst said:

• The potential for upside to estimates given a unique business model, the link to Hilton's network and a monopoly in the Japanese market.
• Less potential downside in a recession due to less exposure to consumer financing defaults.
• High cash conversion coupled with a below-average multiple for the stock.

Bluegreen Vacations

Valuation concerns are keeping McKnight on the sidelines despite a favorable view of the industry as a whole, the analyst said. Bluegreen Vacations shares are trading at 7.6x 2019E EBITDA, which is below the group average but within 0.7x turns of Hilton Grand Vacations, the analyst said. The stock is trading with a "balanced" risk-reward profile, he said. 

Related Link: A Sell-Side Take On What The Bluegreen Spin-Off Means For BBX Capital

Wyndham Worldwide

A mix of favorable industrywide fundamentals  coupled with company-specific challenges is keeping McKnight on the sidelines for Wyndham, he said:

• A potential catalyst in the spinoff of the hotel business is already "well known."
• The timeshare business is reliant on existing owner sales at a time when the owner base is getting older.
• Default rates remain high.

Related Link:

Will Short-Term Rentals Kill The Timeshare Industry?