Climate exposure. At first glance, that means getting too wet, too cold or too hot, right?
Now you can add “too poor” to the mix.
Climate exposure can mean investors in snow-reliant companies like Vail Resorts can lose money because of warming trends decimating ski runs and resort revenue.
Stanford University’s Steyer-Taylor Center for Energy Policy and Finance .
Stanford researcher Donna Bebb mixed environmental trends into the formula for determining the equity value of Vail Resorts. Bebb’s climate exposure model weighs the burden of increased snowmaking, water scarcity, rising energy prices and energy efficiency upgrades and integrates these financial impacts of declining snowfall totals into Vail Resorts’ valuation over the next three-to-five years.
Skiers avoid the dirt patches as they descend toward Mountain Village at Vail today April 5th, 2012.
The 2011-2012 ski season has been one of the worst on record with almost no snow in the entire month of March, a month when many areas expect their biggest snow totals. At Vail, though skiers were still enjoying the warm temperatures and lack of snow, the ski and snow industry is still suffering from the bad year.
Helen H. Richardson, The Denver Post
Working around weather is nothing new for ski resorts. But the sustained drought in California has amplified resort strategies. Vail Resorts is leading the charge in developing warm-weather activities that, ideally, could off-set potential changes in winter business. (Although the company assures analysts its expansive summer development plans are not a hedge but a growth plan.)
The company, with nine major resorts in Colorado, California and Utah, also leads the industry in season pass sales, selling more than 300,000 Epic Passes every season. That season pass revenue – which climbed 22 percent in the company’s fiscal 2015 year, fueling its – irons out the seasonal flow of its largely winter-based businesses.
Vail Resorts also has increased the efficiency of its snowmaking equipment, which saved the company $2 million in energy costs last year.
But those strategies are working against a 20-year trend of declining seasonal snowfall totals across its network of resorts.
So, did Stanford researchers conclude Vail, which was trading at about $108 a share on Wednesday, is a dangerous investment due to its climate exposure?
Not quite. The Stanford study concluded that its climate exposure model lowered Vail Resorts’ stock valuation by a mere 2.2 percent.
Still, the model is a viable tool for investors, writes Bebb.
“The climate exposure equity model illustrates that climate change for (Vail Resorts) and the ski industry needs to be addressed in current valuations, and the financial impact can be measured,” Bebb concludes. “Despite efforts by (Vail Resorts) to offset the impact of lower snowfall on its valuation (by selling Epic Passes, increasing summer resort offerings, investing more in higher efficiency snowmaking equipment, and other methods), climate change negatively affects its financial performance.”
