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3 Leisure & Recreation Services Stocks to Defy Industry Woes

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The Zacks Leisure and Recreation Services industry has been severely impacted by the coronavirus pandemic. However, the industry is gradually recovering aided by easing of government-mandated restrictions and widespread deployment of vaccines. Industry players like 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, SeaWorld Entertainment, Inc. (SEAS - Free Report) is gaining from reopening of theme parks and increase in total revenue per capita.

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 also have ski and sports businesses, while some operate health and wellness centers onboard cruise ships and at destination resorts. Few of the companies are also engaged in the hospitality and related businesses. Moreover, some of the industry participants provide weight management products and services. These companies primarily thrive on overall economic growth, which fuels consumer demand for products. In fact, 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 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) continue to be impacted by cancellation of sailings. Higher cash burn is also hurting the cruise operators. However, these companies are slowly getting back on track with phased resumption. In May, Carnival announced that its seven cruise line brands — AIDA Cruises, Costa Cruises, Cunard, Holland America Line, Princess Cruises, Seabourn and P&O Cruises (UK) — will resume sailing from global ports in Europe and the Caribbean this summer. However, Royal Caribbean has delayed its U.S. resumption plan further as eight cruise members tested positive recently. Its brand new Odyssey of the Seas, which was set to sail from Fort Lauderdale, FL, on Jul 3, has now been pushed back to Jul 31. The company stated that it took the decision “out of an abundance of caution.”

Liquidity a Major Factor Amid 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 players 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.

Recovering Economy: The industry is likely to benefit from decline in the unemployment rate. According to the Labor Department, leisure and hospitality added 292,000 jobs in May, which indicates that the industry is expecting a rebound and is filling in positions before bookings pick up. The Conference Board recently reported that its consumer sentiment index stands at 117.2 for May after downward revision in April. This stable consumer confidence is also helping the leisure industry gear up for a post-pandemic resurgence. With restrictions being eased, Americans are venturing out and engaging in outdoor recreation. This, in turn, has been boosting consumer confidence consistently.

Theme Park Operators Recovering Gradually: The theme park industry, which was rattled by the coronavirus pandemic, is now benefiting from reopening of parks. Although parks continue to operate with capacity limitations and modified operations due to the pandemic, visitation is improving. Demand for theme parks is strong in California. Moreover, consumer spending at theme parks is improving.

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 #178, which places it in the bottom 29% of 252 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 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 Jan 31, 2021, the industry’s loss estimates for the current year have widened by 14.7%.

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 Outperforms Sector and S&P 500

The Zacks Leisure and Recreation Services industry has outperformed the Zacks S&P 500 composite and its sector over the past year. Stocks in the industry have collectively gained 85.3% in the past year compared with the broader sector’s growth of 36%. Meanwhile, the S&P 500 has rallied 45.6% 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 50.99X compared with the S&P 500’s 17.23X and the sector’s 11.6X. Over the past five years, the industry has traded as high as 55.58X and as low as 5.8X, with the median being at 9.26X, as the charts show.

 EV/EBITDA Ratio (F12M) Compared With S&P


 

3 Leisure and Recreation Services Stocks Worth Betting 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. It has also been investing heavily in product development.

Shares of this Zacks Rank #1 (Strong Buy) company have gained 42.1% in the past six months. In the past 30 days, earnings estimates for 2021 have been revised upward by 4.9% to $5.54. You can see the complete list of today’s Zacks #1 Rank 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.

Shares of this Zacks Rank #1 company have surged 69% in the past six months. The company’s earnings for fiscal 2021 are likely to increase 439.22%. Moreover, the consensus mark for fiscal 2021 earnings indicates growth of 6.6% in the past 30 days, which reflects analysts’ optimism regarding the stock’s growth potential.

Price and Consensus: RICK

SeaWorld Entertainment: Domiciled in Orlando, FL, it operates as a theme park and entertainment company. The company is gaining from strategic pricing, marketing, cost and capital investment initiatives. SeaWorld Entertainment also witnessed robust Spring Break season across its parks. Moreover, it is seeing improvement in attendance trend.

Shares of this Zacks Rank #2 (Buy) company have soared 72.4% in the past six months. The company’s earnings for fiscal 2021 are likely to increase 125.6%. Moreover, the consensus mark for fiscal 2021 earnings suggests improvement of 10.9% in the past 30 days that highlights analysts’ optimism regarding the stock’s growth potential.

Price and Consensus: SEAS

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