Diamond Resorts: Zacks’ Bull of the Day Play

DRII posted a nice beat last week, with sales coming in at $220M and earnings coming in at, well what were earnings? The release has a lot of information about the company, but if you are looking for an earnings per share number, you are not going to find it.If I go with 75.66M shares outstanding, a number that I found on a financial information website, then the EPS numbers works out to be $0.35. I took the net income number from page 11 of the most recent release.

The Zacks Consensus Estimate of $0.37 per share was not adjusted at the time of publication of this article, so I cannot say if it was a beat or not.

Company Description

Diamond Resorts is in the hospitality and vacation ownership industry. The company operates in two segments, Hospitality & Management Services, and Vacation Interest Sales & Financing. The company has 92 managed resorts, 210 affiliated properties, and 4 cruise itineraries. It also offers vacation ownership program. The company was incorporated in 2013 and is headquartered in Las Vegas, Nevada.

Estimate History

With 2014 almost in the books, most investors have begun looking mostly at the estimates for 2015. That said the 2014 Zacks Consensus Estimate for DRII recently kicked higher by a penny to $0.89. A penny isn’t that much, but this isn’t why this stock is a Zacks Rank #1 (Strong Buy).The 2015 Zacks Consensus Estimate recently jumped, and maybe more than jumped it launched higher. As of September the number stood at $1.70, but following the recent earnings release and increase of guidance, the new number is $1.95. That $0.25 increase is huge, and the it is the main reason this stock is now a #1.

The implied earnings growth rate for next year is a whopping 119%. That is some big earnings growth, and what’s more, the business is super reliable and predictable as they already have 2015 HOA budgets approved. That is to say, a good portion of their revenues are highly visible.

Valuation

This stock carries a slight premium valuation, but the visibility and earnings growth make up for that in spades. The forward PE of 29x is just higher than the 27x industry average. The price to book multiple of 8.4x for DRII is probably the biggest premium to the 3x industry average that I have seen in a while. The price to sales multiple of 2.4x is right in line with the industry average.On the most recent earnings release, the company announced a $100M buy back program. Analysts usually don’t have the impact of a buyback fully modeled in as it will take the company some time to put all that cash to work. Right now, without that reduction of shares analysts are calling for 119% growth in earnings, and if the company can consistently decrease the number of shares outstanding that number could increase well over 125%.

Recent Research

JP Morgan noted to clients that this quarter was another strong one as they raised their target price to $32. On the conference call, analysts from Goldman Sachs, Credit Suisse and JMP Securities were also heard from. This means that while the Zacks system only shows 3 estimates there is a good likelihood for at least four and there could be others soon.The Chart

The price and consensus chart is a very helpful tool developed by Zacks. It shows how the earnings estimates help guide the stock, so as estimates move higher, the stock price generally follows along. DRII as a Zacks Rank #1 (Strong Buy) is no exception to that idea. While there is not a lot of data for this chart, the thing I look for is earnings estimates to start moving up before the stock. The 2015 consensus just jumped, and I would not be surprised to see it continue to move higher.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

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