Morgan Stanley: timeshare stocks show promise amid rate challenges

Investing.com -- Morgan Stanley initiated coverage on timeshare companies with a mixed outlook, upgrading Travel + Leisure Co (NYSE: TNL) and Hilton Grand Vacations Inc (NYSE: HGV) to "overweight" while assigning an "underweight" rating to Marriot Vacations Worldwide (NYSE: VAC). Brokerage highlighted the sector's robust pre-pandemic returns but flagged headwinds from higher interest rates.

TNL, trading at an 8x forward P/E and 14% free cash flow yield has pivot to high-credit-quality customers, which Morgan Stanley (NYSE: MS) believes could drive beats and re-rating potential, setting a $67 price target, implying 32% upside. HGV, supported by synergies from recent acquisitions, is expected to achieve a 20% EPS CAGR through 2026, with a price target of $47, reflecting 20% upside.

Whereas VAC faces risks from declining owner credit quality and a potential need to rebuild inventory, with a $87 price target indicating 3% downside. Morgan Stanley sees VAC as constrained by higher loan loss provisions and elevated costs.

While timeshare stocks have underperformed over the past three years, MS noted their "misunderstood" potential, emphasizing that strategic shifts and stable growth prospects could drive outperformance in the sector.

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