The Zacks Leisure and Recreation Products industry comprises an array of companies providing amusement and recreational products and services such as swimming pools, golf courses, boats, outdoor spaces to name a few. A couple of companies within the industry also manufacture outdoor equipment and apparels for climbing, mountaineering, backpacking, skiing and other outdoor recreation activities.
The companies inhabiting the industry are sensitive to the business cycle. Consumer demand is relatively elastic and any significant change in the general market often alters consumers’ preference. As such, the industry primarily thrives on overall economic growth.
Let us look at the three major themes in the industry:
- Steady rise in wages, lower unemployment and upbeat consumer confidence create a conducive environment for growth of leisure stocks. Given the current economic scenario, one can expect these companies to gain on increased consumer demand. Per the second estimate reported by the Bureau of Economic Analysis, gross domestic product (GDP) increased at an annualized rate of 3.5% in the third quarter, compared with growth of 4.2% in the second quarter. Overall the economy is on track to achieve Trump administration’s annual growth target of 3%. The Fed also raised outlook on U.S. economic growth. Current year economic growth is currently pegged at 3.1%.
- The industry is highly vulnerable to changing weather conditions. For instance, demand for skiing directly depends on the amount and timing of snowfall. Further, swimming pool manufacturers always witness higher demand in summer. Additionally, there is a general boost in demand for outdoor and sports activities during the holiday season. Most companies in the recreational product space have specific quarters of revenue growth. For Pool Corporation (POOL - Free Report) , sales are favored by weather conditions in the second and third quarter of a calendar year while unseasonably late warming trends in spring or early winters affect sales.
- Apart from higher personal expenditure, increased demand for leisure products and services is also aiding the leisure industry of late. According to a report by Statista, revenues at the sports and outdoor space are expected to witness a compound annual growth rate (CAGR) of 9% from 2018 to 2023. User penetration stands at 12.2% in 2018 and is expected to reach 16.7% by 2023. Per Deloitte, retailers of leisure goods have witnessed strong growth since 2010. Furthermore, a report by Global Market Insights suggests that the boating market share in the United States will surpass $28.5 billion by 2024. National Marine Manufacturers Association had also mentioned that boat manufacturers are continuously increasing production to support high demand. Demand for powerboats, including small sterndrive, wakeboard boats and smaller fiberglass boats with jet technology is rapidly increasing.
Zacks Industry Rank Indicates Solid Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects.
The Leisure and Recreation Products industry currently carries a Zacks Industry Rank #31, which places it at the top 12% of more than 250 Zacks industries. 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 trend in collective earnings estimate revisions of the constituent companies indicates a solid earnings outlook for the industry, which in turn has helped it in securing a position within the top 50%. In other words, the sell-side analysts covering the companies in this Zacks industry have been steadily raising their estimates.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags on Shareholder Returns
The Zacks Leisure and Recreation Products industry has underperformed the Zacks S&P 500 composite and its sector over the past year. Stocks in this industry have collectively declined 12.2% over the past year versus the S&P 500’s gain of 2.4% and the Zacks Consumer Discretionary sector’s decline of 2.9%.
One Year Price Performance
On the basis of forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing leisure product stocks, the industry trades at 15.65X versus the S&P 500’s 17.4X and the sector’s 19.47X.
Forward Price To Earnings Ratio Compared With S&P
Over the past five years, the industry has traded as high as 22.87X, as low as 13.30X and recorded a median of 17.90X, as the charts show.
Forward Price To Earnings Ratio Compared With Sector
The improvement of personal income doesn’t signal enough additional household funds to spend on expensive leisure goods and services. However, lower unemployment and continued economic growth will keep the industry’s growth momentum alive in the near term.
Below are five stocks with positive earnings estimate revisions and a favorable Zacks Rank.
Marine Products Corporation (MPX - Free Report) , a preeminent distributor of sterndrive powerboats in the United States, flaunts a Zacks Rank #1 (Strong Buy). Earnings estimates for the current year have increased 7.3% over the past two months to 88 cents. This suggests that earnings per share will grow 46.7% year over year in 2018. The company’s shares have returned 44.8% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: MPX
The developer and manufacturer of sports boats, Malibu Boats, Inc. (MBUU - Free Report) , has a Zacks Rank #2 (Buy). The company’s shares have gained 41.4% in the past year. Earnings estimates for the current year have moved up 6.6% over the past two months to $3.40, reflecting an increase of 30.8% from the prior year.
Price and Consensus: MBUU
The renowned golf products provider, Callaway Golf Company (ELY - Free Report) carries a Zacks Rank #2. The company’s shares have returned 16.9% in the past year. Earnings estimates for the current year have increased 5% over the past two months to $1.05, highlighting an increase of 98.1% from the prior year.
Price and Consensus: ELY
Pool Corporation, a swimming pool maker, carries a Zacks Rank #2. Its shares have gained 26.6% in the past year. Earnings estimates for 2018 have been revised upward by 1.6% over the past 60 days to $5.63, reflecting 41.1% growth from 2017.
Price and Consensus: POOL
Clarus Corporation (CLAR - Free Report) designs, manufactures and markets outdoor equipment for climbing, mountaineering, backpacking and skiing. The company carries a Zacks Rank #2. Earnings estimates for the current year have increased 14.5% over the past two months to 63 cents. This suggests that earnings per share will grow 293.8% year over year in 2018. The company’s shares have returned 38.3% over the past year.
Price and Consensus: CLAR
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