Options Trade –Marriott Vacations Worldwide (VAC)
Wednesday, January 30, 2013

A Pleasurable Trade!

**OPTION TRADE: Buy the VAC Jul 2013 45.000 call (VAC130720C00045000) at or under $1.65, good for the day. Place a protective stop limit at $0.80 and a pre-determined sell at $3.00.

by Ian Harvey

January 30, 2013

Introduction

Leisure and entertainment companies have plenty of promise, especially as we emerge from our recent years of economic strife. As more people find jobs, more money will be spent on fun.

Plenty of leisure and entertainment companies had strong performances over the past year. Marriott Vacations Worldwide (NYSE: VAC) , for example, surged more than 150%. Spun off from Marriott International, Inc. (NYSE: MAR) and focusing on timeshares and upscale residence clubs, the company's stock now looks overvalued, with its forward P/E ratio recently topping 25%. Revenue grew modestly in its last quarter, and management upped its expectations.

About Marriott Vacations Worldwide Corporation

Marriott Vacations Worldwide Corporation is the leading global pure-play vacation ownership company. Through a spin-off in late 2011, Marriott Vacations Worldwide was established as an independent, public company focusing primarily on vacation ownership experiences.

Since entering the industry in 1984 as part of Marriott International, Inc., the company earned its position as a leader and innovator in vacation ownership products. The company preserves high standards of excellence in serving its customers, investors and associates while maintaining a long-term relationship with Marriott International.

Marriott Vacations Worldwide offers a diverse portfolio of quality products, programs and management expertise with more than 60 resorts and more than 420,000 Owners and Members. Its brands include: Marriott Vacation Club, The Ritz-Carlton Destination Club and Grand Residences by Marriott.

The Chart

From a technical perspective, VAC is moving modestly higher here right above some near-term support at $43 with above-average volume. This move has started to push shares of VAC into breakout territory and all-time-high territory, since the stock has taken out some near-term overhead resistance at $44.53.

Since VAC is trending above $43 to $42.49 with strong upside volume flows, traders can also key off VAC’s 50-day moving average of $41.46 which determines that the stock wants to stay in its current uptrend.

VAC is up more than 150% since it got started, including gains of 120% over the last year. That’s a pretty big run when you consider Marriott and the SPDR S&P 500 (NYSE: SPY) each gained 14% in the same period. Of course, the question is whether there’s any further push left for such a run to continue.

However, things look promising. Marriott Vacations Worldwide raised its full-year outlook for 2012 when it announced Q3 results in mid-October, now expecting an adjusted EPS between $1.17 and $1.31 compared to its original range of $1.03 to $1.17.

Plus, the company is especially attractive despite the run-up because its cash return — free cash flow plus net interest expense divided into enterprise value — is 10.3%. Anything above 10% is a good indication that the company’s efficiently using its capital to generate free cash flow. If it continues to do so, there’s no reason its stock won’t continue to rise.

Earnings

Marriott Vacations Worldwide Corporation will report financial results for the fourth quarter and full year 2012 before the market opens on February 21, 2013.

Analysts Opinions

MKM Partners reiterated a Buy on Marriott Vacations Worldwide (NYSE : VAC) and raised its price target to $60.00 (from $45.00).

"Several data points in the quarter reinforced our conviction in the earnings growth and earnings power of the company," said analyst Chris Agnew.

"The company believes it can achieve a margin of 14%-15% in 2013 versus its initial 2012 goal of 12%. We believe the company can achieve these goals mostly through aligning sales and marketing costs with industry best practice," said Agnew.

VAC has also identified $15 to 20 million of annualized savings by 2014, as it phases out the transitional services agreement with Marriott International (NYSE: MAR). This is seen by Agnew as another positive.

Analyst Firms Making Recommendations

CANTOR FITZGERA CO FORECST
DEUTSCHE BK SEC GOLDMAN SACHS
SUNTRUST ROBINS

Shares of Marriott Vacations Worldwide closed at $45.00 yesterday, with a 52 week range of $19.79 - $45.36.

If VAC can maintain its current trend, then this stock will have a great chance of tagging $50 or higher in the near future.

Therefore, based on the facts above the following options trade is recommended…..


**OPTION TRADE: Buy the VAC Jul 2013 45.000 call (VAC130720C00045000) at or under $1.65, good for the day. Place a protective stop limit at $0.80 and a pre-determined sell at $3.00.



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