Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Marriott International Inc (MAR)’s Timeshare Business Is Looking Great

Marriott Vacations Worldwide Corp (NYSE:VAC)It may be surprising to hear that hospitality and tourism are the fastest-growing industries in the world. One of the biggest names in the industry, unsurprisingly, is Marriott International Inc (NYSE:MAR), which represents a variety of names in hotels, motels, and resorts around the world. As a spin-off from Marriott International Inc (NYSE:MAR) In late 2011, Marriott Vacations Worldwide Corp (NYSE:VAC) is a business that specializes in vacation ownership, otherwise known as timeshares. While thoughts of the quintessential timeshare salesman may bring a sting to your gut, this business offers investors bright prospects on the back of a booming industry. Here’s what you need to know about Marriott Vacations Worldwide Corp (NYSE:VAC).

(Time)Shares up
Marriott Vacations Worldwide Corp (NYSE:VAC) posted impressive earnings last week, with second-quarter profits up sixfold, and revenues growing in the double digits.

Specifically, the company delivered $421 million in sales — up 10% from $383 million in the year-ago quarter. The Street was expecting in the low 400s, giving investors a cause to rally the stock to its highest price since the IPO in November 2011.

At the bottom of the income statement, things looked even better — Marriott Vacations Worldwide Corp (NYSE:VAC) posted adjusted earnings of $0.73 per share. This came in substantially higher than the year-ago earnings of $0.33 per share, and far above Wall Street estimates of $0.48 per share. Management credits the growth to increased demand and a favorable mix of inventory.

Marriott Vacations Worldwide Corp (NYSE:VAC) holds two valuable names in the hospitality industry — the namesake, Marriott Vacation Club, and its premium sister, Ritz Carlton Destination Club. The recent success of the two brands led management to bump up full-year guidance to $1.94 -$2.10 per share, up $0.07 on either end from previous estimates.

Clearly, the company has prospered since its separation from the mothership, but can industry tailwinds continue to push this stock higher?

Future planning
Some investors were concerned with the company’s lower year-over-year contract sales and tour volumes — elements that suggest business will soften going forward. However, as noted by Cantor Fitzgerald, the company’s strategies have boosted margins, as evidenced by the 8% growth in room efficiencies and shifts in owner preferences. Investors should also note that the lower contract sales were mainly a matter of closing underperforming sales centers in the Asia-Pacific region.

With the exception of some softness in Europe, the company appears to be firing on all cylinders.

On a free cash flow basis, the company is expecting in the neighborhood of $120 million to $135 million. This implies a P/FCF of 11.63 times, to 13.08 times. Marriott Vacations Worldwide Corp (NYSE:VAC) is the only current pure play timeshare stock (there is another on the way — Diamond Resorts International), which makes comps somewhat difficult. And, despite its fantastic growth since its IPO, Marriott Vacations does not appear to be overvalued, especially given the long-term outlook for the industry. The company has found ways to cut costs, as the separation from Marriott International Inc (NYSE:MAR) is further and further in the rear view. These efforts should continue to save money over the next few years, especially on a tax basis.

Trading at over 18 times forward earnings, Marriott Vacations is slightly more expensive than its parent company, but the bottom line is that substantial growth tailwinds and wise management make this a compelling play for investors.

The article Marriott’s Timeshare Business Is Looking Great originally appeared on and is written by Michael Lewis.

Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.