Travel + Leisure Goes Big—Is It Ready to Rally?

Key Points

• Travel + Leisure reported strong second-quarter results, with revenue up 4.4% and adjusted EPS up 14%, prompting raised full-year guidance.
• The company expanded its reach through a combined $343 million acquisition of Yes& Vacations and Spinnaker Resorts, adding 23 resorts and over 100,000 owners.
• Analysts hold a consensus Buy rating with roughly 24% implied upside, though the shrinking Travel and Membership segment remains a key risk.

Travel + Leisure NYSE: TNL just bought into some hard-to-enter markets and reported strong second-quarter results. Analysts rate the stock a Buy and say it has room to run.

But not all its business is surging ahead, and investors’ sharp reaction after disappointing first-quarter results shows that this leading time-share company is not a sure thing.

For investors, the question is whether the purchases will pay off and if vacation owners and consumers will keep signing up and spending.

Acquisitions Expand Travel + Leisure’s Reach

Travel + Leisure is the corporate descendant of Wyndham's old vacation-ownership business. Today, with more than 280 resort locations in the United States, Canada, Mexico, the Caribbean, and Asia Pacific, the company is the world's largest vacation ownership business, with 29,000 individual vacation ownership units and 797,000 owner families, company filings show.

The company's operations include specialized brands such as Sports Illustrated Resorts, Eddie Bauer Adventure Club, Margaritaville Vacation Club, and Accor Vacation Club, as well as its timeshare brands, Club Wyndham, WorldMark, and RCI.

That reach just got bigger in July as Travel + Leisure closed the acquisition of Yes& Vacations and signed a deal to buy Spinnaker Resorts, in a combined $343 million bet that adds 23 resorts and more than 100,000 owners in Maui and Hilton Head, two of the hardest markets in the country to build new timeshare inventory.

Second-Quarter Shows Growth

Even without these new acquisitions, Travel + Leisure has been seeing its numbers rise. The second quarter overall came in strong.

Net revenue rose 4.4% year-over-year to $1.06 billion, topping the $1.04 billion analysts had modeled.

Adjusted diluted earnings per share came in at $1.88, up 14% from a year earlier and landing right on consensus. GAAP earnings hit $109 million as diluted earnings per share were $1.72, up 6.2%. Adjusted EBITDA climbed 8%, to $269 million, and the adjusted EBITDA margin expanded to 25.3% from 24.6%.

Core Vacation Ownership Business Leads the Way

But underneath those headline numbers, the company’s two major business segments told different stories.

Vacation Ownership, the timeshare-sales engine that drives most of the profit, grew revenue 6% to $907 million, and adjusted EBITDA 13% to $247 million, helped by a 2% increase in volume per guest and 6% growth in gross vacation ownership interest (VOI) sales to $693 million.

Travel and Membership, the RCI exchange and travel-club business, moved the other way, however. Revenue was down 5% to $157 million, and adjusted EBITDA down 11% to $49 million, as exchange transactions and members declined.

The Travel and Membership side of things also hit the company’s first-quarter results. That segment saw a sharp drop, with revenue falling 8% to $165 million and adjusted EBITDA dropping 13% to $59 million.

Combining that with flat guidance for the year, shares in the company dropped more than 10% as a result. After climbing more than 80% in the 12 months before, the disappointing figures hit perhaps harder than they otherwise might have, but the softness in Travel and Membership continues to be watched. Shares in the company are roughly flat year to date and still up 20% over the last 12 months.

Higher Guidance and Returns Add Momentum

For the second quarter, though, the increases in revenue and income, along with the acquisitions, changed the story, prompting management to raise full-year guidance. It is now expecting consolidated adjusted EBITDA of $1.065 billion to $1.085 billion, including the new acquisitions, compared with $1.05 billion to $1.065 billion on a standalone basis. Adjusted earnings per share are projected to grow roughly 20% for the year.

The company is also rewarding shareholders, having returned $125 million in the quarter through $37 million in dividends and $88 million in buybacks, bringing first-half capital returns to $253 million and cutting the share count by 4%.

That’s in addition to the board earlier this year raising the quarterly dividend 7% to 60 cents per share for a yield of about 3.3% and the fifth straight year of dividend increases.

Analysts See Further Upside

Despite any ups and downs, Wall Street is enjoying what it sees. Thirteen analysts cover the stock with a consensus Buy rating. Of those, two analysts have given the company a Strong Buy, 10 have assigned a Buy, and one recommends Hold.

The average 12-month price target is $87.82, implying roughly 24% upside from recent levels. The highest price target is $107, while the lowest is $71.

Competition and Segment Weakness Pose Risks

Adding to the question about the long-term trajectory of Travel and Membership, the company also faces outside pressures. Even as the largest player within its segment, there's still competitive risk in the market.

The company's own annual report warns that the timeshare industry is highly competitive, pitting Travel + Leisure against large rival companies, such as Marriott Vacations Worldwide NYSE: VAC, whose stock has doubled year to date, and Hilton Grand Vacations NYSE: HGV. In addition, asset-light alternatives like home-sharing platforms pull from some of its customer base and don't carry the same capital burden.

Valuation Leaves Room for Further Gains

Despite the pressures, Travel + Leisure looks like a disciplined operator using its size to buy additional growth while also returning cash to shareholders. Its core Vacation Ownership business is still expanding, and its forward price/earnings ratio under 10 leaves room to rise if the company’s execution holds.

But the stock has shown it’s not all smooth sailing. Sentiment can change quickly with more than a hint of disappointment. The shrinking Travel and Membership segment also raises questions.

Still, for income investors who are sold on the timeshare model, the stock’s slight pullback and apparent momentum could be reasons to consider a buy.

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