According to a filing with the Securities and Exchange Commission, Stephen Weisz, the CEO and president of Marriott Vacations Worldwide (VAC), purchased 7,500 shares of the company's stock on Feb. 25 at an average price of $40.31 per share. Stock of Marriott Vacations, which was spun out from Marriott International (MAR) as an independent vacation ownership property business, has more than doubled since its IPO in November 2011, but it plunged about 13% earlier in February after its results for the fourth quarter of 2012 disappointed the Street. So Weisz's purchase seems intended to capitalize on the fall in the stock price.
Interestingly, this is the first purchase we've recorded in our database for Weisz since the end of December 2011, when the stock price was below $18 per share. Insider purchases are generally considered to be bullish signals, since they signify enough confidence in the stock to overcome the benefits of diversification, and we particularly like to take note when an insider who has a good track record is buying.
Marriott Vacations' adjusted earnings for the fourth quarter of 2012 were actually up from a year earlier and beat expectations. Revenue had been expected to decline, but it rose 3%, including an increase in sales of vacation ownership products (which makes up about 40% of revenue). Marriott Vacations did guide earnings for 2013 to a range whose center is about $1.90, which would make for a current-year price-to-earnings ratio of 22. The company also announced that free cash flows would likely come in much lower this year than last year.
Overall, these financials are not particularly poor, and the earnings multiple based on the internal guidance is not abnormally high. So we can see why Weisz may have reacted to the drop in the stock price by buying additional shares, particularly if he expects earnings growth to continue over the next several years. The sell side's consensus for 2014 implies a forward P/E of 19, which would be in line with Marriott Vacations matching its guidance and then getting limited earnings growth in the following year.
Marriott Vacations happens to be more or less alone as a pure-play vacation ownership property company, and it does a daily dollar volume of $1 million or more. So in terms of peer comparisons, we believe it's best to be aware of Marriott International and then look at Starwood Hotels and Resorts (HOT), which contains both hotel and vacation ownership business units.
The Marriott International hotels business is expected to earn $2 per share this year, placing its earnings multiple at 20. Starwood trades at 21x earnings, whether we consider trailing results or consensus for 2014. That company also reported a decline in net income in its most recent quarter compared to the fourth quarter of 2011, even while both the Marriott spinout and its former parent grew their earnings (likely because of spinout-enabled efficiencies). It's possible that the hotels and vacation ownership businesses have already realized any potential gains. However, we would rather own the pair of Marriott businesses than invest in Starwood at this time.
Marriott Vacations seems to be performing well. Our guess is that the market was expecting an even greater earnings beat or even higher earnings targets for 2013 than the company provided, and this caused a correction after the stock's strong rise. However, in terms of what the quarterly report meant for the business, the numbers seem good. Certainly it's difficult to say that the stock is overvalued when we look at where Starwood trades compared with Marriott Vacations and the Marriott hotel business.
Marriott Vacations does seem a bit pricey to be a value stock, but after this insider purchase, we'd say that it's is a good watch-list stock for next quarter. It may even be worth learning more about the company to better see what the chances of sustained earnings growth are like.
