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3 Leisure & Recreation Services Stocks to Buy Despite Industry Gloom
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The Zacks Leisure and Recreation Services industry faces challenges due to elevated inflation and a sluggish global economy. However, the industry benefits from optimizing business processes, consistent strategic partnerships and digital initiatives. The robust demand for concerts, improving bookings for cruise operators and higher per capita spending at theme parks are supporting the industry. Industry players like Royal Caribbean Cruises Ltd. (RCL - Free Report) , Live Nation Entertainment, Inc. (LYV - Free Report) and OneSpaWorld Holdings Limited (OSW - Free Report) are likely to gain in their respective fields owing to the factors mentioned above.
Industry Description
The Zacks Leisure and Recreation Services industry comprises various recreation providers, such as cruise, entertainment and media owners, golf-related leisure and entertainment venue businesses, theme park makers, resort operators and event organizers. Some industry players have ski and sports businesses, while some operate health and wellness centers onboard cruise ships and at destination resorts. Many 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, highly dependent on business cycles, is driven by a healthy labor market, rising wages and a growing disposable income.
3 Trends Shaping the Leisure & Recreation Services Industry's Future
Concerns of Slowing Global Economy & High Inflation: A slowdown in the global economy is likely to hurt the industry. Inflation in the United States is the biggest challenge for the economy. The consumer price index (CPI) reading for August inched up 0.6% on a monthly basis, higher than July’s rise of 0.2%. Year over year, CPI increased 3.7% in August, higher than the expected rise of 3.6%. This is also the first time since February 2022 that CPI has increased more than 0.6% month over month. Inflationary cost increases in labor, compensation, healthcare, freight and rent lead to higher expenses.
Robust Demand Aid Cruise Operators: The cruise industry is benefiting from strong demand for cruising and accelerating booking volumes. The industry is benefiting from solid bookings concerning North America and European sailings. Also, strong pricing (on closer-in-demand) and solid onboard spending bode well for the industry. However, the cruise operators’ operations are likely to be influenced by the uncertainty related to the Russian invasion of Ukraine. Geopolitical developments have pushed fuel curves higher. Due to the war, most cruise operators have decided to withdraw all activity in Russia.
Theme Park Operators & Live Entertainment Companies Bouncing Back: The theme park industry has been benefiting from robust demand. Theme park operators have been gaining from improving visitation. Consumer spending at theme parks continues to rise. Live entertainment firms have benefited from pent-up live event demand and robust ticket sales.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Leisure and Recreation Services industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #180, which places it in the bottom 27% of 246 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull 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 results from a 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 the group’s earnings growth potential. Since Aug 31, 2023, the industry's earnings estimates for 2023 have dropped 0.9%.
Before we present a few stocks that investors can consider, 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, but has outperformed its sector in the past year. Stocks in the industry have collectively increased 16.5% in the past year compared with the broader sector’s increase of 9.3%. The S&P 500 has risen 17.7% 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 54.43X compared with the S&P 500’s 19.71X and the sector’s 13.09X. In the past five years, the industry has traded as high as 59.36X and as low as 6.20, with the median being 9.49X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks Worth Betting On
Royal Caribbean Cruises: Based in Miami and incorporated in 1985, Royal Caribbean Cruises is a cruise company. The company benefits from the strong demand for Caribbean itineraries, solid close-in bookings at higher prices and the continued strength of onboard spend. Given the full fleet resumption and high-priced load factors, the company expects customer deposits to return to typical seasonality in the upcoming periods. In 2023, the company anticipates solid guest generation from the North America region.
Shares of this Zacks Rank #1 (Strong Buy) company have surged 104.7% in the past year. In 2023, the company’s sales and earnings are expected to witness growth of 55.1% and 182.1%, respectively, from the prior year’s expected levels. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: RCL
Live Nation Entertainment: The company benefits from pent-up demand for live events, robust ticket sales and the sponsorship and advertising business. The company is optimistic about its growth prospects in 2023. For concerts, the company stated that it has already sold more than 117 million tickets (as of Jun 2023), up 20% from 2022 levels.
Shares of this Zacks Rank #1 company have increased 5.2% in the past year. In 2023, the company’s sales and earnings are expected to grow 21% and 57.8%, respectively, from the prior year’s expected levels.
Price and Consensus: LYV
OneSpaWorld Holdings: The company runs health and wellness centers on cruise ships and at destination resorts worldwide. It is experiencing growth thanks to its innovative approach, exceptional service and unique ability to form cruise line partnerships.
Shares of this Zacks Rank #2 company have increased 26.7% in the past year. In fiscal 2023, the company’s sales and earnings are expected to witness growth of 44.5% and 117.9%, year over year, respectively.
Price and Consensus: OSW
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3 Leisure & Recreation Services Stocks to Buy Despite Industry Gloom
The Zacks Leisure and Recreation Services industry faces challenges due to elevated inflation and a sluggish global economy. However, the industry benefits from optimizing business processes, consistent strategic partnerships and digital initiatives. The robust demand for concerts, improving bookings for cruise operators and higher per capita spending at theme parks are supporting the industry. Industry players like Royal Caribbean Cruises Ltd. (RCL - Free Report) , Live Nation Entertainment, Inc. (LYV - Free Report) and OneSpaWorld Holdings Limited (OSW - Free Report) are likely to gain in their respective fields owing to the factors mentioned above.
Industry Description
The Zacks Leisure and Recreation Services industry comprises various recreation providers, such as cruise, entertainment and media owners, golf-related leisure and entertainment venue businesses, theme park makers, resort operators and event organizers. Some industry players have ski and sports businesses, while some operate health and wellness centers onboard cruise ships and at destination resorts. Many 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, highly dependent on business cycles, is driven by a healthy labor market, rising wages and a growing disposable income.
3 Trends Shaping the Leisure & Recreation Services Industry's Future
Concerns of Slowing Global Economy & High Inflation: A slowdown in the global economy is likely to hurt the industry. Inflation in the United States is the biggest challenge for the economy. The consumer price index (CPI) reading for August inched up 0.6% on a monthly basis, higher than July’s rise of 0.2%. Year over year, CPI increased 3.7% in August, higher than the expected rise of 3.6%. This is also the first time since February 2022 that CPI has increased more than 0.6% month over month. Inflationary cost increases in labor, compensation, healthcare, freight and rent lead to higher expenses.
Robust Demand Aid Cruise Operators: The cruise industry is benefiting from strong demand for cruising and accelerating booking volumes. The industry is benefiting from solid bookings concerning North America and European sailings. Also, strong pricing (on closer-in-demand) and solid onboard spending bode well for the industry. However, the cruise operators’ operations are likely to be influenced by the uncertainty related to the Russian invasion of Ukraine. Geopolitical developments have pushed fuel curves higher. Due to the war, most cruise operators have decided to withdraw all activity in Russia.
Theme Park Operators & Live Entertainment Companies Bouncing Back: The theme park industry has been benefiting from robust demand. Theme park operators have been gaining from improving visitation. Consumer spending at theme parks continues to rise. Live entertainment firms have benefited from pent-up live event demand and robust ticket sales.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Leisure and Recreation Services industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #180, which places it in the bottom 27% of 246 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull 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 results from a 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 the group’s earnings growth potential. Since Aug 31, 2023, the industry's earnings estimates for 2023 have dropped 0.9%.
Before we present a few stocks that investors can consider, 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, but has outperformed its sector in the past year. Stocks in the industry have collectively increased 16.5% in the past year compared with the broader sector’s increase of 9.3%. The S&P 500 has risen 17.7% in the said time frame.
One-Year Price Performance
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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 54.43X compared with the S&P 500’s 19.71X and the sector’s 13.09X. In the past five years, the industry has traded as high as 59.36X and as low as 6.20, with the median being 9.49X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks Worth Betting On
Royal Caribbean Cruises: Based in Miami and incorporated in 1985, Royal Caribbean Cruises is a cruise company. The company benefits from the strong demand for Caribbean itineraries, solid close-in bookings at higher prices and the continued strength of onboard spend. Given the full fleet resumption and high-priced load factors, the company expects customer deposits to return to typical seasonality in the upcoming periods. In 2023, the company anticipates solid guest generation from the North America region.
Shares of this Zacks Rank #1 (Strong Buy) company have surged 104.7% in the past year. In 2023, the company’s sales and earnings are expected to witness growth of 55.1% and 182.1%, respectively, from the prior year’s expected levels. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: RCL
Live Nation Entertainment: The company benefits from pent-up demand for live events, robust ticket sales and the sponsorship and advertising business. The company is optimistic about its growth prospects in 2023. For concerts, the company stated that it has already sold more than 117 million tickets (as of Jun 2023), up 20% from 2022 levels.
Shares of this Zacks Rank #1 company have increased 5.2% in the past year. In 2023, the company’s sales and earnings are expected to grow 21% and 57.8%, respectively, from the prior year’s expected levels.
Price and Consensus: LYV
OneSpaWorld Holdings: The company runs health and wellness centers on cruise ships and at destination resorts worldwide. It is experiencing growth thanks to its innovative approach, exceptional service and unique ability to form cruise line partnerships.
Shares of this Zacks Rank #2 company have increased 26.7% in the past year. In fiscal 2023, the company’s sales and earnings are expected to witness growth of 44.5% and 117.9%, year over year, respectively.
Price and Consensus: OSW