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3 Leisure & Recreation Services Stocks to Buy Amid Industry Woes
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The Zacks Leisure and Recreation Services industry has been severely impacted by the coronavirus pandemic. Moreover, higher unemployment rate continues to hurt the industry. However, although unemployment rate declined in January, its is still above the pre-pandemic level.
Nevertheless, Camping World Holdings, Inc. (CWH - Free Report) and RCI Hospitality Holdings, Inc. (RICK - Free Report) are likely to gain in their respective fields fueled by consistent strategic partnerships, digital initiatives and the reopening of economy after coronavirus-induced shutdowns. In fact, AMC Entertainment Holdings, Inc. (AMC - Free Report) is benefiting from reopening of theatres.
Industry Description
The Zacks Leisure and Recreation Services industry comprises a wide range of recreation providers such as cruise, entertainment and media owners, theme park makers, resort operators and event organizers. Some of the industry participants also have ski and sports businesses. Consumer demand for such services is relatively elastic, implying that the industry primarily thrives on overall economic conditions.
4 Trends Shaping the Future of Leisure & Recreation Services Industry
Cruise Operators Hurt by the Pandemic: The cruise industry has been driven to a standstill by the coronavirus-induced crisis. Major cruise operators including Royal Caribbean Cruises Ltd. (RCL - Free Report) , Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) and Carnival Corporation & Plc (CCL - Free Report) continues to be impacted by dismal bookings. Due to the coronavirus pandemic, companies had to cancel sailings. Meanwhile, higher-than-anticipated load factors, timing and investment in revenue-generating activities are adding to costs. In the ongoing quarter, costs are likely to increase due to the suspension of operations. Carnival stated that cumulative advanced bookings for the second half of 2021 are within the historical range. Moreover, bookings for the first half of 2022 are ahead of 2019. As of Nov 30, 2020, nearly 45% of guests impacted by the company's schedule changes have received enhanced future cruise credits ("FCCs"), while roughly 55% have requested refunds.
Higher Unemployment Rate Hurts: The coronavirus pandemic has rattled the world economy and the United States has been no exception. Per the U.S. Bureau of Labor Statistics, unemployment rate came in at 6.3% in January — still a high figure historically — but down 0.4%. Although unemployed persons declined to 10.1 million, it is still well above the pre-pandemic level. Further, rising macroeconomic uncertainties and bare minimum revenue prospects have compelled the industry players to withdraw their guidance.
Liquidity a Major Factor During Pandemic: Maintaining liquidity has become a herculean task for a number of industry participants in the current scenario. Most of the companies are cutting pay and furloughing employees. The industry participants are also suspending share repurchase programs and dividend payouts to improve liquidity. Moreover, supply chain disruptions due the pandemic are likely to hurt the industry in the near term.
Consumer Confidence Rise in January: Consumer spending is a key driver of the U.S. economy, as two-third of the economy relies on it. Confident consumers indicate higher spending capability and stronger household spending, which in turn can boost the economy. A sharp increase in raise brings fresh hope. On Jan 26, the conference board reported that the index of consumer confidence increased to 89.3 in January, up from 87.1 in December.
Zacks Industry Rank Indicates Dismal Prospects
The Zacks Leisure and Recreation Services industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #186, which places it in the bottom 26% of 253 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since Oct 31, 2020, the industry’s earnings estimates for the current year have moved south by 23.3%.
Despite the drab near-term prospects, we will present a few stocks that investors can add to their portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags Sector and S&P 500
The Zacks Leisure and Recreation Services industry has underperformed the Zacks S&P 500 composite and its sector over the past year. Stocks in the industry have collectively slumped 20.4% in the past year against the broader sector’s growth of 19.1%. Meanwhile, the S&P 500 has rallied 18.1% in the said time frame.
One Year Price Performance
Valuation
On the basis of the forward 12-month EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization), which is a commonly used multiple for valuing debt-laden leisure service stocks, the industry trades at 48.97X compared with the S&P 500’s 17.25X and the sector’s 11.67X. Over the past five years, the industry has traded as high as 53.43X and as low as 5.54X, with the median being at 9.00X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks to Keep a Close Eye On
Camping World Holdings: Headquartered in Lincolnshire, IL, the company was founded in 1966. Through its subsidiaries, Camping World operates as an outdoor and camping retailer. The company is likely to benefit from launch of a fresh peer-to-peer RV rental marketplace and a mobile service marketplace in the spring of 2021. It is also investing heavily in product development. The company recently announced its long-term goal. It expects to generate adjusted EBITDA growth in the mid-single digits over the next five years.
RCI Hospitality Holdings: Based in Houston, TX, the company operates through Nightclubs, Bombshells and Other segments. The company is benefiting from the reopening of bombshells and nightclubs. The company is also optimistic as more clubs have been given green signal to reopen. As of Feb 10, 2021, 31 clubs and all 10 Bombshells were opened.
Shares of this Zacks Rank #2 company have soared 116.3% in the past three months. The company’s earnings for fiscal 2021 are likely to increase 241.2%. Moreover, earnings estimates for fiscal 2021 indicates growth of 4.8% in the past seven days that reflects analysts’ optimism regarding the stock’s growth potential.
Price and Consensus: RICK
AMC Entertainment: Headquartered in Leawood, KS, was formed in 1920. The company is benefiting from reopening of theatres. During third-quarter 2020, the company informed that as of Oct 20, 2020, AMC had resumed operations at 539 domestic theatres with limited seating capacity.
Shares of this Zacks Rank #2 company have gained 74% in the past three months compared with the S&P 500’s increase of 10.4%. Moreover, the company’s earnings for 2021 are likely to gain 92.5%. The earnings estimate for 2021 indicates growth of 31%, which reflects analysts’ optimism regarding the stock’s growth potential.
Price and Consensus: AMC
Zacks Names “Single Best Pick to Double” All
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. All
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year. All
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3 Leisure & Recreation Services Stocks to Buy Amid Industry Woes
The Zacks Leisure and Recreation Services industry has been severely impacted by the coronavirus pandemic. Moreover, higher unemployment rate continues to hurt the industry. However, although unemployment rate declined in January, its is still above the pre-pandemic level.
Nevertheless, Camping World Holdings, Inc. (CWH - Free Report) and RCI Hospitality Holdings, Inc. (RICK - Free Report) are likely to gain in their respective fields fueled by consistent strategic partnerships, digital initiatives and the reopening of economy after coronavirus-induced shutdowns. In fact, AMC Entertainment Holdings, Inc. (AMC - Free Report) is benefiting from reopening of theatres.
Industry Description
The Zacks Leisure and Recreation Services industry comprises a wide range of recreation providers such as cruise, entertainment and media owners, theme park makers, resort operators and event organizers. Some of the industry participants also have ski and sports businesses. Consumer demand for such services is relatively elastic, implying that the industry primarily thrives on overall economic conditions.
4 Trends Shaping the Future of Leisure & Recreation Services Industry
Cruise Operators Hurt by the Pandemic: The cruise industry has been driven to a standstill by the coronavirus-induced crisis. Major cruise operators including Royal Caribbean Cruises Ltd. (RCL - Free Report) , Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) and Carnival Corporation & Plc (CCL - Free Report) continues to be impacted by dismal bookings. Due to the coronavirus pandemic, companies had to cancel sailings. Meanwhile, higher-than-anticipated load factors, timing and investment in revenue-generating activities are adding to costs. In the ongoing quarter, costs are likely to increase due to the suspension of operations. Carnival stated that cumulative advanced bookings for the second half of 2021 are within the historical range. Moreover, bookings for the first half of 2022 are ahead of 2019. As of Nov 30, 2020, nearly 45% of guests impacted by the company's schedule changes have received enhanced future cruise credits ("FCCs"), while roughly 55% have requested refunds.
Higher Unemployment Rate Hurts: The coronavirus pandemic has rattled the world economy and the United States has been no exception. Per the U.S. Bureau of Labor Statistics, unemployment rate came in at 6.3% in January — still a high figure historically — but down 0.4%. Although unemployed persons declined to 10.1 million, it is still well above the pre-pandemic level. Further, rising macroeconomic uncertainties and bare minimum revenue prospects have compelled the industry players to withdraw their guidance.
Liquidity a Major Factor During Pandemic: Maintaining liquidity has become a herculean task for a number of industry participants in the current scenario. Most of the companies are cutting pay and furloughing employees. The industry participants are also suspending share repurchase programs and dividend payouts to improve liquidity. Moreover, supply chain disruptions due the pandemic are likely to hurt the industry in the near term.
Consumer Confidence Rise in January: Consumer spending is a key driver of the U.S. economy, as two-third of the economy relies on it. Confident consumers indicate higher spending capability and stronger household spending, which in turn can boost the economy. A sharp increase in raise brings fresh hope. On Jan 26, the conference board reported that the index of consumer confidence increased to 89.3 in January, up from 87.1 in December.
Zacks Industry Rank Indicates Dismal Prospects
The Zacks Leisure and Recreation Services industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #186, which places it in the bottom 26% of 253 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since Oct 31, 2020, the industry’s earnings estimates for the current year have moved south by 23.3%.
Despite the drab near-term prospects, we will present a few stocks that investors can add to their portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags Sector and S&P 500
The Zacks Leisure and Recreation Services industry has underperformed the Zacks S&P 500 composite and its sector over the past year. Stocks in the industry have collectively slumped 20.4% in the past year against the broader sector’s growth of 19.1%. Meanwhile, the S&P 500 has rallied 18.1% in the said time frame.
One Year Price Performance
Valuation
On the basis of the forward 12-month EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization), which is a commonly used multiple for valuing debt-laden leisure service stocks, the industry trades at 48.97X compared with the S&P 500’s 17.25X and the sector’s 11.67X. Over the past five years, the industry has traded as high as 53.43X and as low as 5.54X, with the median being at 9.00X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks to Keep a Close Eye On
Camping World Holdings: Headquartered in Lincolnshire, IL, the company was founded in 1966. Through its subsidiaries, Camping World operates as an outdoor and camping retailer. The company is likely to benefit from launch of a fresh peer-to-peer RV rental marketplace and a mobile service marketplace in the spring of 2021. It is also investing heavily in product development. The company recently announced its long-term goal. It expects to generate adjusted EBITDA growth in the mid-single digits over the next five years.
Shares of this Zacks Rank #2 (Buy) company have gained 31% in the past three months. In the past 30 days, earnings estimates for 2021 have witnessed upward revisions of 3.4% to $3.02. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: CWH
RCI Hospitality Holdings: Based in Houston, TX, the company operates through Nightclubs, Bombshells and Other segments. The company is benefiting from the reopening of bombshells and nightclubs. The company is also optimistic as more clubs have been given green signal to reopen. As of Feb 10, 2021, 31 clubs and all 10 Bombshells were opened.
Shares of this Zacks Rank #2 company have soared 116.3% in the past three months. The company’s earnings for fiscal 2021 are likely to increase 241.2%. Moreover, earnings estimates for fiscal 2021 indicates growth of 4.8% in the past seven days that reflects analysts’ optimism regarding the stock’s growth potential.
Price and Consensus: RICK
AMC Entertainment: Headquartered in Leawood, KS, was formed in 1920. The company is benefiting from reopening of theatres. During third-quarter 2020, the company informed that as of Oct 20, 2020, AMC had resumed operations at 539 domestic theatres with limited seating capacity.
Shares of this Zacks Rank #2 company have gained 74% in the past three months compared with the S&P 500’s increase of 10.4%. Moreover, the company’s earnings for 2021 are likely to gain 92.5%. The earnings estimate for 2021 indicates growth of 31%, which reflects analysts’ optimism regarding the stock’s growth potential.
Price and Consensus: AMC
Zacks Names “Single Best Pick to Double” All
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. All
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year. All
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