JPMorgan has shifted its stance on Hilton Grand Vacations (NYSE: NYSE:), moving from an Overweight to a Neutral rating, coupled with a significant price target reduction to $36 from the previous $55.

The adjustment follows Hilton Grand Vacations’ second-quarter 2024 performance, which led to lowered EBITDA forecasts for the full year.

The company’s newly revised EBITDA guidance, with a midpoint 10% lower than the earlier range of $1.20 billion to $1.26 billion, now stands at $1.075 billion to $1.135 billion.

The change mirrors the trends seen in the timeshare industry, as reflected in the recent report from Hilton’s peer, VAC. Hilton’s June results were notably affected by new owner hesitation, impacting the volume per guest (VPG) and an uptick in default and delinquency trends, which in turn increased the provision for loan losses.

JPMorgan also noted the internal challenges Hilton faced due to the restructuring of its sales and marketing team. For the third quarter of 2024, the bank has revised its EBITDA forecast for Hilton down by 16%, with contract sales expected to drop by 4% to $813 million.

The loan loss provision is anticipated to be 16% of owned contract sales, up from the previous 14%.

The firm’s EBITDA projections for 2024 and 2025 have been reduced by 12% each to $1.105 billion and $1.183 billion, respectively.

These downgrades reflect concerns over persisting negative trends in VPG and loan loss metrics, which are not expected to improve in the short term against the backdrop of weakening consumer spending, particularly on high-cost discretionary items that form the core of Hilton’s business model.

In addition, Hilton is facing unique challenges integrating its recent acquisition of Bluegreen Vacations (NYSE:). JPMorgan suggests that the market has now fully recognized the potential difficulties of this integration, which were previously underestimated. For investors interested in the timeshare sector, JPMorgan favors TNL, which maintains an Overweight rating.

The new year-end 2025 price target for Hilton is based on a 6.0x multiple of the estimated 2025 enterprise value to EBITDA, a reduction from the previous multiple, aligning with the valuation of Hilton’s timeshare peer VAC and close to TNL’s multiple.

Hilton’s current trading multiples are at 6.7x and 5.9x JPMorgan’s 2024 and 2025 EBITDA forecasts, with free cash flow yields of 15% and 19%, respectively.

Hilton Grand Vacations’ Q1 2024 performance boasted robust results, with contract sales reaching $631 million and an EBITDA of $270 million, largely due to the contribution from Bluegreen Vacations, which was acquired earlier this year.

However, Jefferies downgraded Hilton Grand Vacations’ rating from Buy to Hold, citing a slowdown in timeshare demand and changes in the company’s sales force structure as reasons for a less certain outlook.

Furthermore, Hilton Grand Vacations expanded its board of directors with the appointments of Christine Cahill and Gail Mandel. These appointments are expected to provide valuable insights and guidance to the company’s strategic direction.

InvestingPro Insights

Amidst the revised EBITDA guidance and the challenges highlighted by JPMorgan, Hilton Grand Vacations (NYSE:HGV) is showing signs of resilience in certain areas. According to InvestingPro data, the company’s revenue growth over the last twelve months as of Q2 2024 stands at 9.45%, indicating a robust top-line performance. Despite the recent price total return trends showing a decline, with a 1-week price total return of -10.53%, the company’s management has been actively engaging in share buybacks, as noted in one of the InvestingPro Tips, which could signal confidence in the company’s value proposition.

Furthermore, analysts remain optimistic about Hilton’s potential, predicting sales growth in the current year and profitability, suggesting that the underlying business might still have strong fundamentals. This is supported by the fact that Hilton’s liquid assets exceed its short-term obligations, providing a cushion in a challenging economic environment. With the stock trading near its 52-week low and a fair value estimation by analysts at $55, some investors might view the current prices as an attractive entry point.

InvestingPro also provides additional insights for investors looking to delve deeper into Hilton Grand Vacations’ financial health and market performance. Currently, there are six more InvestingPro Tips available on https://www.investing.com/pro/HGV, offering a more comprehensive analysis for those interested in the timeshare sector and considering HGV’s stock.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.