HGV – Market expectations are for Uniform ROA to recover, but management may be concerned about demand, default rates, and capital allocation

April 15, 2021

  • Hilton Grand Vacations Inc. (HGV:USA) currently trades above historical averages relative to UAFRS-based (Uniform) earnings, with a 37.1x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may be concerned about timeshare demand, rising default rates, and their capital allocation strategies

  • Specifically, management may have concerns about rising annualized default rates, developer maintenance fees, and the buildup of owner points. Furthermore, they may lack confidence in their ability to realize pent-up demand through 2022, ramp sales in the financing business, and continue executing efficient capital strategies. Moreover, management may be exaggerating the quantity of available hotel acquisition opportunities and the quality of their owner base. Finally, they may be concerned about a lack of seasonal tailwinds, their online sales capabilities, and their decision to put unused land up for sale