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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 bearing the brunt of high costs, downward revisions to U.S. first-quarter GDP and weak consumer spending. However, the optimization of business processes, consistent strategic partnerships and digital initiatives bode well for the industry. Industry players like Caesars Entertainment, Inc. (CZR - Free Report) , Madison Square Garden Sports Corp. (MSGS - Free Report) and Sonder Holdings Inc. (SOND - Free Report) are likely to gain in their respective fields, owing to the aforementioned factors.
Industry Description
The Zacks Leisure and Recreation Services industry comprises a wide range of recreation providers such as cruise, entertainment and media owners, golf-related leisure and entertainment venue business, theme park makers, resort operators and event organizers. Some of the industry players have ski and sports businesses, while some operate health and wellness centers onboard cruise ships and at destination resorts. Some of the companies are engaged in hospitality and related businesses. A few of the industry participants also provide weight management products and services. These companies primarily thrive on overall economic growth, which fuels consumer demand for products. Demand, which is highly dependent on business cycles, is driven by a healthy labor market, rising wages and growing disposable income.
4 Trends Shaping the Future of Leisure & Recreation Services Industry
Cruise Operators Recovery Continues: The cruise industry has been severely impacted by the coronavirus pandemic. However, cruise operators are slowly recovering, backed by the resumption of services. However, China, which is closed to international travelers, will continue to hurt cruise operators. The cruise operators’ operations are likely to be influenced by the uncertainty related to the Russian invasion of Ukraine. Also, geopolitical developments have pushed fuel curves higher. Due to the war, most cruise operators have decided to withdraw all activity in Russia. Cash burn is hurting the companies.
Slowing US Economy Remains a Concern: Investors remain highly skeptical regarding the U.S. economic growth. U.S. GDP growth contracted by 1.6% in the first quarter of 2022. On Jul 1, the latest data from Atlanta Fed showed that GDP growth is estimated to decline 2.1% in second-quarter 2022. Theoretically, an economy is said to be in recession when the GDP growth rate contracts for two consecutive quarters. Market participants remain highly apprehensive regarding economic stagflation or a possible recession as a result of an extremely hawkish Fed trying to reduce record-high inflation to near its targeted rate.
Theme Park Operators & Live Entertainment Companies Bouncing Back: The theme park industry, which was rattled by the coronavirus pandemic, has been benefiting from the reopening of parks. Theme Park operators have been gaining from improving visitation. Consumer spending at theme parks has been rising. Meanwhile, live entertainment firms have been benefiting from pent-up demand for live events and robust ticket sales.
Liquidity a Major Factor Amid Pandemic: Maintaining liquidity has become an arduous task for a number of industry participants in the current scenario. Most companies are cutting pay and furloughing employees. The industry players are suspending share repurchase programs and dividend payouts to improve liquidity. Supply chain disruptions due to the pandemic are likely to hurt the industry in the near term.
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 #189, which places it in the bottom 24% of 251 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 outperform 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 the result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in the group’s earnings growth potential. Since Dec 31, 2021, the industry’s loss estimates for the current year have moved south by 167.8%.
Before we present a few stocks that investors can take a look at, let’s analyze the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the 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 fallen 42.3% in the past year compared with the broader sector’s decline of 41.7%. The S&P 500 has decreased 12.2% 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 14.08X compared with the S&P 500’s 11.6X and the sector’s 8.24X. Over the past five years, the industry has traded as high as 191.13X and as low as 5.55X, with the median being at 10.09X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks Worth Betting On
Caesars Entertainment: Caesars Entertainment is a diversified gaming and hospitality company based in Reno, NV. The company continues to benefit from robust occupancy. During first-quarter 2022, occupancy in Las Vegas reached 83%, with weekend and midweek occupancy attaining 95% and 77%, respectively. The upside was primarily driven by pent-up demand and solid booking trends. Going forward, the company is optimistic about booking trends as it is witnessing increased bookings for group and convention room nights. The company anticipates an uptrend in bookings to continue in 2022 and beyond.
Madison Square Garden Sports: Based in New York, NY, the company operates as a professional sports company. The company has been benefiting from average strong consumer and corporate demand at New York Knicks and New York Rangers regular-season games at the Madison Square Garden Arena. An increase in average per-game revenues across tickets, suites and sponsorship, as well as food, beverage and merchandise per-caps, bode well.
Shares of this Zacks Rank #2 company have declined 10.3% in the past year. Its earnings for fiscal 2022 are likely to increase 215.5%. The consensus mark for fiscal 2022 earnings has increased to 67 cents from break-even in the past 30 days.
Price and Consensus: MSGS
Sonder Holdings: Based in San Francisco, CA, the company engages in the hospitality business. The company has been gaining from rising occupancy and RevPAR. During first-quarter 2022, the total portfolio of live and contracted units rose to nearly 19,300 units, up 48% year over year.
Shares of this Zacks Rank #2 company have declined 90.2% in the past year. In the past 30 days, loss estimates for the company have narrowed to 59 cents from 71 cents per share.
Price and Consensus: SOND
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3 Leisure & Recreation Services Stocks to Buy Amid Industry Woes
The Zacks Leisure and Recreation Services industry has been bearing the brunt of high costs, downward revisions to U.S. first-quarter GDP and weak consumer spending. However, the optimization of business processes, consistent strategic partnerships and digital initiatives bode well for the industry. Industry players like Caesars Entertainment, Inc. (CZR - Free Report) , Madison Square Garden Sports Corp. (MSGS - Free Report) and Sonder Holdings Inc. (SOND - Free Report) are likely to gain in their respective fields, owing to the aforementioned factors.
Industry Description
The Zacks Leisure and Recreation Services industry comprises a wide range of recreation providers such as cruise, entertainment and media owners, golf-related leisure and entertainment venue business, theme park makers, resort operators and event organizers. Some of the industry players have ski and sports businesses, while some operate health and wellness centers onboard cruise ships and at destination resorts. Some of the companies are engaged in hospitality and related businesses. A few of the industry participants also provide weight management products and services. These companies primarily thrive on overall economic growth, which fuels consumer demand for products. Demand, which is highly dependent on business cycles, is driven by a healthy labor market, rising wages and growing disposable income.
4 Trends Shaping the Future of Leisure & Recreation Services Industry
Cruise Operators Recovery Continues: The cruise industry has been severely impacted by the coronavirus pandemic. However, cruise operators are slowly recovering, backed by the resumption of services. However, China, which is closed to international travelers, will continue to hurt cruise operators. The cruise operators’ operations are likely to be influenced by the uncertainty related to the Russian invasion of Ukraine. Also, geopolitical developments have pushed fuel curves higher. Due to the war, most cruise operators have decided to withdraw all activity in Russia. Cash burn is hurting the companies.
Slowing US Economy Remains a Concern: Investors remain highly skeptical regarding the U.S. economic growth. U.S. GDP growth contracted by 1.6% in the first quarter of 2022. On Jul 1, the latest data from Atlanta Fed showed that GDP growth is estimated to decline 2.1% in second-quarter 2022. Theoretically, an economy is said to be in recession when the GDP growth rate contracts for two consecutive quarters. Market participants remain highly apprehensive regarding economic stagflation or a possible recession as a result of an extremely hawkish Fed trying to reduce record-high inflation to near its targeted rate.
Theme Park Operators & Live Entertainment Companies Bouncing Back: The theme park industry, which was rattled by the coronavirus pandemic, has been benefiting from the reopening of parks. Theme Park operators have been gaining from improving visitation. Consumer spending at theme parks has been rising. Meanwhile, live entertainment firms have been benefiting from pent-up demand for live events and robust ticket sales.
Liquidity a Major Factor Amid Pandemic: Maintaining liquidity has become an arduous task for a number of industry participants in the current scenario. Most companies are cutting pay and furloughing employees. The industry players are suspending share repurchase programs and dividend payouts to improve liquidity. Supply chain disruptions due to the pandemic are likely to hurt the industry in the near term.
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 #189, which places it in the bottom 24% of 251 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 outperform 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 the result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in the group’s earnings growth potential. Since Dec 31, 2021, the industry’s loss estimates for the current year have moved south by 167.8%.
Before we present a few stocks that investors can take a look at, let’s analyze the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the 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 fallen 42.3% in the past year compared with the broader sector’s decline of 41.7%. The S&P 500 has decreased 12.2% 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 14.08X compared with the S&P 500’s 11.6X and the sector’s 8.24X. Over the past five years, the industry has traded as high as 191.13X and as low as 5.55X, with the median being at 10.09X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks Worth Betting On
Caesars Entertainment: Caesars Entertainment is a diversified gaming and hospitality company based in Reno, NV. The company continues to benefit from robust occupancy. During first-quarter 2022, occupancy in Las Vegas reached 83%, with weekend and midweek occupancy attaining 95% and 77%, respectively. The upside was primarily driven by pent-up demand and solid booking trends. Going forward, the company is optimistic about booking trends as it is witnessing increased bookings for group and convention room nights. The company anticipates an uptrend in bookings to continue in 2022 and beyond.
Shares of this Zacks Rank #2 (Buy) company have declined 59% in the past year. In the past 30 days, loss estimates for the company have narrowed to $1.20 from $1.48 per share. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: CZR
Madison Square Garden Sports: Based in New York, NY, the company operates as a professional sports company. The company has been benefiting from average strong consumer and corporate demand at New York Knicks and New York Rangers regular-season games at the Madison Square Garden Arena. An increase in average per-game revenues across tickets, suites and sponsorship, as well as food, beverage and merchandise per-caps, bode well.
Shares of this Zacks Rank #2 company have declined 10.3% in the past year. Its earnings for fiscal 2022 are likely to increase 215.5%. The consensus mark for fiscal 2022 earnings has increased to 67 cents from break-even in the past 30 days.
Price and Consensus: MSGS
Sonder Holdings: Based in San Francisco, CA, the company engages in the hospitality business. The company has been gaining from rising occupancy and RevPAR. During first-quarter 2022, the total portfolio of live and contracted units rose to nearly 19,300 units, up 48% year over year.
Shares of this Zacks Rank #2 company have declined 90.2% in the past year. In the past 30 days, loss estimates for the company have narrowed to 59 cents from 71 cents per share.
Price and Consensus: SOND