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Outlook for Leisure & Recreation Services Industry Looks Grim
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The Zacks Leisure and Recreation Services industry includes a wide range of recreation providers such as cruise, entertainment and media owners, theme park makers, resort operators and event organizers. A couple of companies within the industry also have ski and sports businesses.
Consumer demand for such services is relatively elastic which indicates that the industry primarily thrives on overall economic conditions.
Let us look at the three major themes in the industry:
The leisure services industry is loaded with high cost burden. The companies within the space generally work through multiple business models. For instance, many event organizers also have resort facilities and earn through both the categories. The complex business structure ends up bumping up costs. Also, investment in extensive advertising is hurting a few companies. Moreover, since most leisure and recreation service companies heavily rely on debt-financing because of the capital-intensive nature of their businesses, the rising interest rate environment doesn’t bode well. Further, competition stemming from the presence of a broad array of alternative entertainment options has been a potent headwind.
However, the industry is poised to gain from a healthy labor market, rising wages and growing disposable income. Per the Bureau of Economic Analysis’ "advance" estimate, U.S. gross domestic product (GDP) increased at an annual rate of 3.2% in the first quarter of 2019. The increase is attributable to higher personal consumption expenditures (PCE), private inventory investment, exports, state and local government spending, and nonresidential fixed investment. The uptrend is likely to continue in the near term as well, aiding the leisure service space.
Apart from higher household expenses, increased demand for leisure products and services is also aiding the leisure industry. According to a report by Statista, revenues at the sports and outdoor space are expected to see a compound annual growth rate (CAGR) of 9% from 2018 to 2023. Per the Cruise Lines International Association, the cruise industry is likely to grow throughout 2019 with 30 million cruisers, up 6% from 28.2 million in 2018.
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 #182, which places it in the bottom 29% of 256 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 Dec 31, 2018, the industry’s earnings estimates for the current year have moved 2.2% down.
Our proprietary Heat Map shows that the industry’s rank has remained in the bottom half in two out of eight weeks.
Despite the drab near-term prospects, we will present a few stocks that one can consider buying. Also, it’s worth taking a look at the industry’s shareholder return and current valuation before that.
Industry Lags on Shareholder Returns
The Zacks Leisure and Recreation Services industry has underperformed the Zacks S&P 500 composite and its sector over the past year. Stocks in this industry have collectively lost 0.5% over the past year compared with the S&P 500’s rise of 4.9% and the broader sector’s rally of 2.6%.
One Year Price Performance
Valuation
On the basis of the trailing 12-month EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization) ratio, which is a commonly used multiple for valuing debt-laden leisure service stocks, the industry trades at 7.24X versus the S&P 500’s 10.63X and the sector’s 12.21X.
EV/EBITDA Ratio (TTM) Compared With S&P
Over the past five years, the industry has traded as high as 9.99X, as low as 6.35X and recorded a median of 7.98X, as the charts show.
EV/EBITDA Ratio (TTM) Compared With Sector
Bottom Line
Steady rise in wages, lower unemployment and upbeat consumer confidence have been creating a favorable environment for leisure stocks.
Below are four stocks with positive earnings estimate revisions and a favorable Zacks Rank.
SeaWorld Entertainment, Inc. is a theme park and entertainment company operating primarily in the United States. The company owns and operates U.S. theme parks, including the popular SeaWorld(R), Busch Gardens(R) and Sesame Place(R) brands. The company carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for current-year earnings per share (EPS) has risen 14.8% over the past two months to $1.40. Earnings in 2019 are expected to increase 169.2% year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: SEAS
A renowned operator of golf related leisure and entertainment businesses, Drive Shack Inc. ,carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year loss has narrowed down to 28 cents from 40 cents over the past two months, suggesting an improvement of 34.9% over the prior-year reported figure.
Price and Consensus: DS
The Madison Square Garden Company , a sports, entertainment and media service provider, holds a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has increased 219.1% over the past two months to $1.50.
Price and Consensus: MSG
OneSpaWorld Holdings Limited (OSW - Free Report) operates various health and wellness centers on cruise ships and at destination resorts worldwide. Its centers offer various health, fitness, beauty, and wellness services, treatments, and products onboard 164 cruise ships and at 67 destination resorts. The Zacks Consensus Estimate for current-year EPS has increased 3.9% over the past two months to 53 cents. The company carries a Zacks Rank #2.
Price and Consensus: OSW
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
Image: Bigstock
Outlook for Leisure & Recreation Services Industry Looks Grim
The Zacks Leisure and Recreation Services industry includes a wide range of recreation providers such as cruise, entertainment and media owners, theme park makers, resort operators and event organizers. A couple of companies within the industry also have ski and sports businesses.
Consumer demand for such services is relatively elastic which indicates that the industry primarily thrives on overall economic conditions.
Let us look at the three major themes in the industry:
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 #182, which places it in the bottom 29% of 256 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 Dec 31, 2018, the industry’s earnings estimates for the current year have moved 2.2% down.
Our proprietary Heat Map shows that the industry’s rank has remained in the bottom half in two out of eight weeks.
Despite the drab near-term prospects, we will present a few stocks that one can consider buying. Also, it’s worth taking a look at the industry’s shareholder return and current valuation before that.
Industry Lags on Shareholder Returns
The Zacks Leisure and Recreation Services industry has underperformed the Zacks S&P 500 composite and its sector over the past year. Stocks in this industry have collectively lost 0.5% over the past year compared with the S&P 500’s rise of 4.9% and the broader sector’s rally of 2.6%.
One Year Price Performance
Valuation
On the basis of the trailing 12-month EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization) ratio, which is a commonly used multiple for valuing debt-laden leisure service stocks, the industry trades at 7.24X versus the S&P 500’s 10.63X and the sector’s 12.21X.
EV/EBITDA Ratio (TTM) Compared With S&P
Over the past five years, the industry has traded as high as 9.99X, as low as 6.35X and recorded a median of 7.98X, as the charts show.
EV/EBITDA Ratio (TTM) Compared With Sector
Bottom Line
Steady rise in wages, lower unemployment and upbeat consumer confidence have been creating a favorable environment for leisure stocks.
Below are four stocks with positive earnings estimate revisions and a favorable Zacks Rank.
SeaWorld Entertainment, Inc. is a theme park and entertainment company operating primarily in the United States. The company owns and operates U.S. theme parks, including the popular SeaWorld(R), Busch Gardens(R) and Sesame Place(R) brands. The company carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for current-year earnings per share (EPS) has risen 14.8% over the past two months to $1.40. Earnings in 2019 are expected to increase 169.2% year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: SEAS
A renowned operator of golf related leisure and entertainment businesses, Drive Shack Inc. ,carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year loss has narrowed down to 28 cents from 40 cents over the past two months, suggesting an improvement of 34.9% over the prior-year reported figure.
Price and Consensus: DS
The Madison Square Garden Company , a sports, entertainment and media service provider, holds a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has increased 219.1% over the past two months to $1.50.
Price and Consensus: MSG
OneSpaWorld Holdings Limited (OSW - Free Report) operates various health and wellness centers on cruise ships and at destination resorts worldwide. Its centers offer various health, fitness, beauty, and wellness services, treatments, and products onboard 164 cruise ships and at 67 destination resorts. The Zacks Consensus Estimate for current-year EPS has increased 3.9% over the past two months to 53 cents. The company carries a Zacks Rank #2.
Price and Consensus: OSW
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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