Since early November, Vail Resorts’ stock (MTN) has not been a great performer in the larger travel and leisure universe.

While the stock market is up nearly 10% since October, Vail Resorts’ stock is down 15%, meaning the stock is underperforming by close to 25 percentage points.

The problem looks to be unique to Vail Resorts in the travel and leisure sector as other big travel stocks appear to be doing fine. Carnival Cruise Lines was $23.01 on Nov. 1, and on Friday it was $21.90. Marriott Hotels is basically flat in that time, and Hilton, like the market overall, is up slightly during that time. Six Flags parks are up slightly in that time, as well.

Among the 12 analysts who cover Vail Resorts stock, two are saying buy and two are saying the stock is attractive, while the remaining eight are saying hold.

S&P is among those issuing a hold rating with a 12-month target price of $360, meaning S&P analysts expect the stock will be in the $360 range in 12 months.

But to get there, MTN will need to start moving in the other direction.

And not all the analysts are convinced it will.

Jan. 4 opinion issued

While several opinions, like S&P’s, were released following Vail Resorts earnings call in December, Truist Securities waited until after the holiday season to issue an opinion.

In that time, Vail Resorts properties have received scathing reviews, with skiers voicing concerns about the guest experience at resorts, and management citing staffing issues and COVID-19 leading to delayed openings.

Vail Resorts stock, on Friday, was trading at $308 after hitting $372 in early November.

Truist published its report on Jan. 4, with the title, “Concerns that MTN is at ‘Epic’ center of the labor shortage.”

“We believe MTN is experiencing severe labor issues that are negatively impacting the customer experience as evidenced by news stories in the media, our private industry contacts, and countless social media postings,” wrote C. Patrick Scholes, Alexander Barenklau and Gregory J. Miller with Truist. “Labor issues are impacting lift openings/staffing, snow grooming, and F&B and retail operations, all compounded by Epic pass sales up 76% from the 2019/2020 ski season.

“On the other hand, labor-related issues are in general less of a major issue at competitors’ resorts, implying such severe issues may be more unique to MTN. In the past several days in response to this dissatisfaction, there have been letters sent out on social media by MTN’s COO (“this has been the most challenging holiday season I’ve ever experienced”) as well as general managers at several of MTN’s resorts publically apologizing for the diminished customer experience.”

Scholes has been analyzing Vail Resorts stock and issuing opinions for years, and on Vail Resorts earnings calls, he frequently asks about labor and staffing issues. In April, Truist issued an opinion predicting labor and staffing challenges could outweigh post-COVID-19 cost savings in the travel and leisure sector.

“Just as the travel industry is turning a corner with demand, the industry is suddenly experiencing major challenges with hiring, rehiring, hourly industry staff,” Scholes wrote in April.

As a result of the hiring challenges, post-COVID-19 cost savings could actually bump earnings before interest, taxes, depreciation and amortization slightly; however, that is “probably not a good nor sustainable thing,” as pointed out by Truist.

“Ironically, margins may in fact benefit this year from the reduced staffing levels,” according to Trusit’s Jan. 4. report.

Truist has a much lower target price than S&P on Vail Resorts stock, meaning Scholes and others aren’t expecting it to rebound by as much. Truist’s price target for Vail Resorts stock is currently $322, compared to $360 for S&P.

In the Jan. 4 opinion, Truist mentioned the 2017-18 season, a painfully low snow year in Vail in which Vail Mountain only recorded 171 inches of snow. Following that season, in which guests expressed dissatisfaction with their ski vacation experiences, there were reduced destination/holiday season bookings the next season.

“MTN’s earnings had a small hiccup and the stock was severely punished as the one-year forward EV/EBITDA multiple collapsed from approx. 21x to 12x (MTN trades at 16x 2023E EV/EBITDA today),” Truist wrote. “While not apples-apples to today’s labor-related issues, this hiccup occurred in late 2018, one year after the weak very early season snowfall leading up to 2017’s Christmas and New Year’s holidays.”

‘May need to bite the bullet and raise wages’

Among the issues impacting Vail Resorts that were cited in Truists’ report:

• Epic pass sales are up 76% vs. the 2019/2020 ski season, meaning the slopes would likely be more crowded to start with regardless of any labor issues.
• MTN’s wages are allegedly not competitive in their local markets (likely the most important issue).
• MTN allegedly “gutted” middle management positions, and it has been difficult to rehire.
• Consolidation of local/regional finance, marketing and human resource departments from MTN’s acquired resorts into MTN’s headquarters in Broomfield, and this has led to a dearth of “local knowledge” when it comes to issue like hiring and setting wages.
• A pandemic-triggered escalation of real estate prices has reduced the number of homes available to local workers.
• H2-B and J-1 international work visas, which ski resorts have historically used to fill employment gaps, are in especially short supply.

The big question cited in the report is what will be the financial impact from customer dissatisfaction with the ski experience.

“To be clear, we are hardly saying the sky is falling and we are not about to reduce earnings estimates yet, rather it is not out of the question that these labor issues may have some financial impact, though extremely difficult to quantify, on MTN’s revenues and margins,” Truist wrote. “We see the best case scenario for MTN is that these labor-related issues get sorted out sooner than later and customers give it a ‘pass’ this year and the issues do not reduce the likelihood of one (re)purchasing an Epic pass for next season.”

But Truist did say it is possible that MTN loses some pass holders to IKON or nonrenewal.

“MTN may need to bite the bullet and raise wages even higher in order to bring the quality of the product back to its historically excellent levels,” Truist wrote.