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3 Leisure & Recreation Services Stock to Buy Despite Industry Woes
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The Zacks Leisure and Recreation Services industry is hurt by high inflation and concerns regarding related to the global economy. However, consistent strategic partnerships and digital initiatives bode well. The robust demand for concerts, robust bookings for cruise operators and higher per capita spending at theme parks are supporting the industry. Firms like Royal Caribbean Cruises Ltd. (RCL - Free Report) , Carnival Corporation & plc (CCL - Free Report) and Madison Square Garden Sports Corp. (MSGS - Free Report) are likely to progress 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 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: The global economy is expected to suffer a downturn, which could negatively impact various industries. Inflation saw a higher-than-anticipated increase in January, disrupting Wall Street’s initial strong start to the year. According to the Labor Department, the consumer price index (CPI) experienced a month-on-month increase of 0.3% in January and a year-on-year increase of 3.1%, following a 3.4% increase in December. These figures surpassed economists' predictions, which were a 0.2% increase for the month and a 2.9% increase on an annual basis. Even though the annual inflation rate was slightly lower than the previous month, it remains significantly above the Federal Reserve's target of 2%.
Robust Demand Aids 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 American and European sailings. Also, strong pricing (on closer-in-demand) and solid onboard spending bode well for the industry. According to the Cruise Lines International Association (CLIA), the number of passengers embarking on cruises is projected to reach 35.7 million in 2024, suggesting an increase from 31.5 million in 2023. The projection calls for a 6% rise from the 2019 figures, reflecting the cruising industry’s upside.
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. The theme park sector is experiencing a boost from integrating technology, particularly through augmented and virtual reality. By incorporating innovative motion simulators, hydraulics and pneumatics and centering on enhancing customer experiences, there's anticipation of a surge in market demand in the coming years. Recently, an increasing number of theme parks have started to weave advanced technology into their attractions and exhibits, aiming to elevate the overall experience. 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 #138, which places it in the bottom 45% of 252 Zacks industries.
The group’s Zacks Industry Rank, which is 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 two to one.
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.
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 and its sector in the past year. Stocks in the industry have gained 5% in the past year compared with the broader sector’s increase of 9.9%. The S&P 500 has risen 29.1% 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 9.83X compared with the S&P 500’s 12.31X and the sector’s 8.81X. In the past five years, the industry has traded as high as 206.65X and as low as 5.95X, with the median being 12.93X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks to Keep an Eye On
Royal Caribbean Cruises: Based in Miami and incorporated in 1985, Royal Caribbean Cruises is a cruise company. It has been benefiting from solid demand for cruising and acceleration in booking volumes. Also, the emphasis on strong pricing (on closer-in-demand) bodes well. The company stated that the momentum has continued into 2024, with booked load factors and rates surpassing those of all previous years. Early booking patterns and heightened onboard spending reflect active consumer engagement, positioning the company favorably to outperform the broader travel industry and attract new clients. With a projected 40% earnings growth, 2024 is anticipated to be a record-breaking year, in line with the company's strategic objectives.
Shares of this Zacks Rank #2 (Buy) company have surged 72.1% in the past year. In 2024, the company’s sales and earnings are expected to witness growth of 14.7% and 47.1%, respectively, from the prior year’s reported levels. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: RCL
Carnival: Founded in 1972 and headquartered in Miami, FL, Carnival operates as a cruise and vacation company. The company is benefiting from improved booking trends, courtesy of solid demand, bundled package offerings and increased advertising activities. The company secured bookings for nearly two-thirds of its business for 2024, with significantly higher prices. Also, focus on fleet-optimization initiatives bodes well.
Shares of this Zacks Rank #2 company have gained 46.5% in the past year. For 2024, the company’s sales are expected to grow 13.8% from the prior year’s reported levels.
Price and Consensus: CCL
Madison Square Garden Sports: The company is benefiting from higher local media rights fees and revenues from league distributions. Also, higher average per-game revenues and net sales of suite products are encouraging.
Shares of this Zacks Rank #2 company have declined 3.1% in the past year. In fiscal 2024, the company’s sales and earnings are expected to witness growth of 1.9% and 11.6%, year over year, respectively.
Price and Consensus: MSGS
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3 Leisure & Recreation Services Stock to Buy Despite Industry Woes
The Zacks Leisure and Recreation Services industry is hurt by high inflation and concerns regarding related to the global economy. However, consistent strategic partnerships and digital initiatives bode well. The robust demand for concerts, robust bookings for cruise operators and higher per capita spending at theme parks are supporting the industry. Firms like Royal Caribbean Cruises Ltd. (RCL - Free Report) , Carnival Corporation & plc (CCL - Free Report) and Madison Square Garden Sports Corp. (MSGS - Free Report) are likely to progress 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 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: The global economy is expected to suffer a downturn, which could negatively impact various industries. Inflation saw a higher-than-anticipated increase in January, disrupting Wall Street’s initial strong start to the year. According to the Labor Department, the consumer price index (CPI) experienced a month-on-month increase of 0.3% in January and a year-on-year increase of 3.1%, following a 3.4% increase in December. These figures surpassed economists' predictions, which were a 0.2% increase for the month and a 2.9% increase on an annual basis. Even though the annual inflation rate was slightly lower than the previous month, it remains significantly above the Federal Reserve's target of 2%.
Robust Demand Aids 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 American and European sailings. Also, strong pricing (on closer-in-demand) and solid onboard spending bode well for the industry. According to the Cruise Lines International Association (CLIA), the number of passengers embarking on cruises is projected to reach 35.7 million in 2024, suggesting an increase from 31.5 million in 2023. The projection calls for a 6% rise from the 2019 figures, reflecting the cruising industry’s upside.
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. The theme park sector is experiencing a boost from integrating technology, particularly through augmented and virtual reality. By incorporating innovative motion simulators, hydraulics and pneumatics and centering on enhancing customer experiences, there's anticipation of a surge in market demand in the coming years. Recently, an increasing number of theme parks have started to weave advanced technology into their attractions and exhibits, aiming to elevate the overall experience. 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 #138, which places it in the bottom 45% of 252 Zacks industries.
The group’s Zacks Industry Rank, which is 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 two to one.
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.
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 and its sector in the past year. Stocks in the industry have gained 5% in the past year compared with the broader sector’s increase of 9.9%. The S&P 500 has risen 29.1% 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 9.83X compared with the S&P 500’s 12.31X and the sector’s 8.81X. In the past five years, the industry has traded as high as 206.65X and as low as 5.95X, with the median being 12.93X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks to Keep an Eye On
Royal Caribbean Cruises: Based in Miami and incorporated in 1985, Royal Caribbean Cruises is a cruise company. It has been benefiting from solid demand for cruising and acceleration in booking volumes. Also, the emphasis on strong pricing (on closer-in-demand) bodes well. The company stated that the momentum has continued into 2024, with booked load factors and rates surpassing those of all previous years. Early booking patterns and heightened onboard spending reflect active consumer engagement, positioning the company favorably to outperform the broader travel industry and attract new clients. With a projected 40% earnings growth, 2024 is anticipated to be a record-breaking year, in line with the company's strategic objectives.
Shares of this Zacks Rank #2 (Buy) company have surged 72.1% in the past year. In 2024, the company’s sales and earnings are expected to witness growth of 14.7% and 47.1%, respectively, from the prior year’s reported levels. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: RCL
Carnival: Founded in 1972 and headquartered in Miami, FL, Carnival operates as a cruise and vacation company. The company is benefiting from improved booking trends, courtesy of solid demand, bundled package offerings and increased advertising activities. The company secured bookings for nearly two-thirds of its business for 2024, with significantly higher prices. Also, focus on fleet-optimization initiatives bodes well.
Shares of this Zacks Rank #2 company have gained 46.5% in the past year. For 2024, the company’s sales are expected to grow 13.8% from the prior year’s reported levels.
Price and Consensus: CCL
Madison Square Garden Sports: The company is benefiting from higher local media rights fees and revenues from league distributions. Also, higher average per-game revenues and net sales of suite products are encouraging.
Shares of this Zacks Rank #2 company have declined 3.1% in the past year. In fiscal 2024, the company’s sales and earnings are expected to witness growth of 1.9% and 11.6%, year over year, respectively.
Price and Consensus: MSGS