The timeshare industry faced significant headwinds in the early 2020s. The COVID-19 pandemic, coupled with rising inflation and interest rates, dampened consumer demand. However, with the pandemic receding, inflation stabilizing, and the Federal Reserve adjusting interest rates, the industry is showing signs of recovery, presenting potential investment opportunities.
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alt text: Graph showing the performance of timeshare stocks
Morgan Stanley analyst Stephen Grambling observes that timeshare stocks are often undervalued by investors. He believes the industry is entering a bullish cycle, citing the sector’s resilience and potential for attractive returns. While acknowledging the past three years of underperformance due to rising rates and normalizing leisure demand, Grambling suggests a potential return to stable growth, leading to a positive outlook for 2025. However, he advises a tactical approach due to structural concerns and business-specific changes. Grambling highlights two timeshare stocks as particularly attractive investment options. Let’s delve into these companies using insights from TipRanks.
Two Timeshare Stocks to Watch
Travel + Leisure Company (TNL)
Travel + Leisure Company, based in Orlando, develops, sells, and manages timeshare properties globally, operating under well-known brands like Wyndham, Margaritaville, and Worldmark. The company’s business segments include vacation ownership, serving over 800,000 owners at more than 270 resorts, and travel & membership, providing 3.5 million members access to over 4,000 resorts worldwide.
In Q3 2024, TNL reported $993 million in revenue, slightly below expectations. However, the company demonstrated strong cash generation, with $266 million in adjusted free cash flow in the first nine months of 2024, significantly exceeding the previous year’s figures. TNL also returned $105 million to shareholders through share repurchases and dividends, maintaining a 3.9% forward dividend yield.
Grambling emphasizes TNL’s strategic shift towards higher-credit customers, resulting in improved owner growth and potentially lower defaults. He views the stock’s current valuation as compelling, trading at an attractive price-to-earnings ratio and offering a substantial free cash flow yield. He anticipates a return to growth, leading to upward revisions in earnings estimates and a potential re-rating of the stock. Grambling’s Overweight rating and $67 price target suggest a significant upside potential for TNL.
Wall Street analysts generally concur with a Moderate Buy consensus rating based on recent reviews. The average price target indicates a more conservative, yet still positive, outlook for the stock.
Hilton Grand Vacations (HGV)
Hilton Grand Vacations, an independent entity since 2017, manages Hilton’s timeshare and vacation ownership brands. With approximately 168 resorts across the US and internationally, HGV provides its 722,000 members access to various vacation amenities and experiences. The company has strategically expanded through acquisitions, including Diamond Resorts and Bluegreen Vacations, enriching its network of properties and destinations.
HGV reported $1.3 billion in revenue for Q3 2024, exceeding expectations and demonstrating substantial year-over-year growth. While earnings per share were lower than the previous year and missed forecasts, Grambling remains optimistic about HGV’s future performance.
He highlights the potential for continued earnings growth driven by synergies and steady revenue growth from the Diamond Resorts and Bluegreen Vacations acquisitions. While acknowledging concerns about the owner base quality, Grambling notes the stability of the average owner credit score and anticipates a potential decrease in loan loss provisions. He expects HGV to deliver strong capital returns relative to its market capitalization. Grambling’s Overweight rating and $47 price target signal a positive outlook for HGV.
The consensus rating on Wall Street aligns with a Moderate Buy based on recent analyst reviews. The average price target mirrors Grambling’s, indicating a potential for substantial price appreciation.
alt text: Graph showing the performance of Hilton Grand Vacations stock
Conclusion
While the timeshare industry has faced challenges, the current market dynamics suggest a potential turnaround. Companies like Travel + Leisure Company and Hilton Grand Vacations, with their strategic positioning and strong fundamentals, are well-positioned to capitalize on this emerging bullish cycle. Investors seeking exposure to the leisure and hospitality sector might find these timeshare stocks worthy of further consideration. However, thorough due diligence and careful analysis are always recommended before making any investment decisions.
