Citizens downgrades Hilton Grand Vacations stock rating on sales weakness

Citizens has lowered its rating of Hilton Grand Vacations (NYSE:HGV) stock from Market Outperform to Market Perform due to the company's struggles in sales. The third-quarter results showed a continued weakness in the core business, with adjusted EBITDA of $313 million, beating analysts' estimates of $304 million and the consensus of $301 million.

However, the sales efficiency dropped by 11% in the quarter, falling short of management's anticipated recovery pace. In response, Hilton Grand Vacations revised its full-year adjusted EBITDA guidance downward by $72.5 million, narrowing the range to $1.165 billion to $1.18 billion. This follows significant disruptions in the sales organization.

The firm views the shares as fairly valued at 6 times the estimated 2027 adjusted EBITDA, compared to the peers' average of 6.1 times. Despite the downgrade, the stock's price-to-earnings ratio of 7.6 suggests it is undervalued, with InvestingPro analysis supporting this view. The stock has gained 7.6% in the past week but is still down 14% year-to-date.

Despite a strong third-quarter performance, the company lowered its full-year outlook due to an 11% decline in contract sales and weaker sales execution. The company also announced a $200 million accelerated share repurchase agreement. Meanwhile, Goldman Sachs lowered its price target for Hilton Grand Vacations to $35.00 and maintained a Neutral rating, citing an unfavorable outlook and unexpected EBITDA trends. The company plans to improve its fourth-quarter free cash flow through two securitizations.