Why MKM Just Upgraded Marriott Vacations (Hint: The Market Overreacted)

In a report published Friday, MKM Partners analyst Christopher Agnew upgraded the rating on Marriott Vacations Worldwide Corp (NYSE: VAC) from Neutral to Buy, while raising the price target from $97 to $100. The analyst believes that the market has overreacted to the company's robust earnings and that the pullback offers a compelling investment opportunity.

Analyst's Insight

The analyst expects several key trends to accelerate in 2H, such as share buybacks accelerating in 3Q. The VPG business is also expected to re-accelerate in 2H. The company has also raised its FCF guidance for FY2015, while reiterating its EBITDA and EPS guidance for the year.

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Marriott's Reported Results

Marriott Vacations reported strong Q2 results, with the EBITDA and EPS ahead of the consensus driven by stronger than expected performance of the rental segment. However, Agnew stated, "Unexpected positives offset softer VPG trends," although the management's guidance implied re-acceleration in VPG in 2H.

Marriott Vacations also reaffirmed its intention to return $160 million-$170 million to shareholders.

Marriott Vacations is currently trading up, around $86.24.

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