The leisure industry has been benefiting from several factors like a strong economy, growing incomes, higher consumer confidence and a strong labor market.

As people are steadfast on spending time with loved ones and keep looking for unique experiences at all price points, companies in the leisure and recreation industry believe that their diverse portfolio of offerings can continue to deliver on this growing demand.

Economic Fundamentals Encouraging

Consumer spending is expected to rise through 2018 backed by a favorable economic scenario. This raises optimism for the companies in the leisure and recreation space. Gross Domestic Product (GDP) grew at a seasonally adjusted annual rate of 2.6% in the fourth quarter of 2017, following gains in the previous two quarters of more than 3%, per the “advance” estimate released by the Bureau of Economic Analysis. This marked the economy’s strongest stretch of growth since the expansion started in mid-2009. Improving economic indicators bode well for the industry as these lead to an increase in leisure and business travel demand.

Meanwhile, consumer spending, the main engine of the economy, grew by 3.8% in the fourth quarter after a 2.2% gain in the third quarter. Again, there was a marked improvement in Consumer Confidence Index in January, after a setback in December. Consumer Confidence rose 2.3 points to 125.4 in January. The momentum is expected to continue through 2018.

Thus, we see no reason why the industry should not continue to enjoy gains on both the top and the bottom lines in the near term, especially when unemployment rate is at a 17-year low and wages are growing at the quickest pace since the end of the last decade.

Industry Numbers Promising

According to Cruise Lines International Association (CLIA), demand for cruising has increased 20.5% from 2011 to 2016. The cruise industry is expected to continue growing significantly in 2018 with 27.2 million passengers likely to cruise. This figure is 5.4% higher than projected for 2017.

Coming to the global luxury travel market, ITB World Travel Trends Report 2017/2018 forecasts strong worldwide travel trends. The consultancy anticipates worldwide outbound trips to increase 5% with strongest growth Latin America and Asia.  Holiday trips, city trips and Sun and beach holidays are expected to grow 6%, 16% and 9%, respectively.

According to a report from Statista, revenues from the sports and outdoor space are expected to rise at a compound annual growth rate (CAGR) of 9.9% from 2018 to 2022.  User penetration, which is currently at 8.7%, is anticipated to touch 10.4% in 2022.

A Mixed Bag for the Broader Sector

The Consumer Discretionary sector that includes leisure and recreational companies is expected to deliver a mixed performance this earnings season.

Per the Earnings Preview, total earnings for the sector are likely to decline 3.7% year over year against 0.9% growth in the last quarter. Total revenues are projected to grow 3.7% year over year in the fourth quarter, slightly higher than the 3.5% growth recorded in the preceding quarter.

Choosing the Winners

Though the overall picture may not be impressive, a few leisure stocks are expected to outperform. So, this is the right time for investors to select some leisure stocks that are well positioned to beat earnings estimates in their upcoming releases.

Choosing stocks with earnings beat potential might be a difficult task unless one knows the process to shortlist. One way to do it is by picking stocks that have the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) — and a positive Earnings ESP.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

5 Companies Likely to Beat

Fairhaven, MA based provider of golf products, Acushnet Holdings Corp. (GOLF Quick QuoteGOLF - Free Report) continues to gain from a broad product category portfolio, continuous product innovations, a favorable mix of consumables and durables and investment in high margin equipment segments.

Going forward, structural improvements in the golf industry are expected to help the company with significant market share gains.

The right combination of two key ingredients — an Earnings ESP of +11.92% and a Zacks Rank of 1 — increases the chance of a positive surprise. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is expected to report fourth-quarter 2017 results on Mar 29.

Grand Prairie, TX based operator of theme and water parks, Six Flags Entertainment Corporation (SIX Quick QuoteSIX - Free Report) is strengthening its top line through membership and pass programs. Notably, the company has witnessed an improvement in earnings and revenues in the fourth quarter every year for the last seven years through investing in Fright Fest and Holiday in the Park.

This trend is expected to continue in the to-be-reported quarter as well. The company will report its quarterly results on Feb 20.  Its Zacks Rank #3 and Earnings ESP of +5.14% increases the odds of an earnings beat.

Salt Lake City, UT, based provider of outdoor apparel for recreation activities, Clarus Corporation (CLAR Quick QuoteCLAR - Free Report) is witnessing sales growth with increasing focus on its core Black Diamond Equipment business and product innovations. Notably, the recent acquisition of Sierra Bullets is expected to strengthen Clarus’s cash flow and margin profile.

With an Earnings ESP of +2.86% and a Zacks Rank #3, the company is likely to deliver a beat this earnings season. It is expected to report results on Mar 5.

Sandusky, OH-based operator of amusement parks, Cedar Fair (FUN Quick QuoteFUN - Free Report) is benefiting from increasing number of its parks and expansion of park capacities. The company is consistently adding attractive amenities and food and beverage capacity to its parks to increase visits. Its increased focus on multi-week special events to drive traffic also bodes well.

Our quantitative model indicates that Cedar Fair is likely to top on earnings this season, as it has a Zacks Rank of 3 and an Earnings ESP of +2.80%. The company will report fourth-quarter 2017 results on Feb 14.

Miami, FL-based cruise line operator, Norwegian Cruise Line Holdings (NCLH Quick QuoteNCLH - Free Report) is being aided by an increase in Capacity Days apart from improved pricing. An increasing number of ports and tourist destinations in Asia present tremendous growth opportunity for the company. Its focus on the lucrative Chinese market is thus encouraging.

With an Earnings ESP of +0.22% and a Zacks Rank #3, the company is likely to deliver a beat this earnings season. It is expected to report fourth-quarter 2017 results on Feb 28.

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