Description

Fairfield Communities is a growth company that is stuck in the unsexy industry of REITs/Hotel Management. The company has a five-year sales growth of 45% with an earnings growth of 25%. The stock is trading at a PE of 6.30 on current earnings and a PE of 5.6 on next year’s earnings.

The company sells luxury time-shared condos. They have recently signed a pack with Carnival Cruise lines to sell a cruise/condo vacation. Note a few years back Carnival also agreed to purchase Fairfield but the deal feel through. Carnival might be wanting back in now, the price is much lower, and the earnings are much higher.

Fairfield is in the middle of a stock repurchase program of 60 million, and has spent about 30 million so far. They have just settled out of court on of a warrant-bond issue with a shareholder with a payout in stock. I am unclear if this will cause dilution or if these are treasury shares. Also rising interest rate will hurt Fairfield two fold, one their cost of money will go up, slowing the development of new properties. Two, less people might purchase time-share packages.

The skinny. Based on a conservative projected sales growth of 20% for the next 5 years, with earnings growing at 15%, the stock will be selling at around $38 based on a high PE of 15(five year high PE range 12-33). With an average PE of 10, the share price should be around $25. The current PE is the lowest it has been in last 5 years.

Let me stress that this is a solid company. Consistent Sales and earnings growth, low debt, and little Institutional Ownership. Most of the Institutional investors were burned when the Carnival deal feel through a few years back. Over the last few weeks there has been some heavy industry buying and selling. This week has quieted down now and the price is starting to creep up. The company’s ROE and Profit Margins are improving each year with reduced debt, which is quite difficult to do.

A boring play, relatively safe, with a potential 34% yearly compound rate based on 15 PE.

Catalyst

Market will recognize growth and value. Takeover candidate.