The Zacks Leisure and Recreation Products industry comprises companies that provide amusement and recreational products, including swimming pools, golf courses, boats and outdoor spaces. Some of the industry participants also manufacture outdoor equipment and apparels for climbing, mountaineering, backpacking and skiing.
The industry players primarily thrive on overall economic growth, which fuels consumer demand for products. In fact, demand is highly dependent on business cycles and is driven by a healthy labor market, rising wages and growing disposable income.
Major companies in the gaming industry include Pool Corporation's (POOL - Free Report) , Brunswick Corporation (BC - Free Report) and YETI Holdings, Inc. (YETI - Free Report) .
Let’s take a look at the industry’s three major themes:
- The coronavirus pandemic has brought the world economy to a standstill, the U.S. economy being no exception. Notably, the country’s unemployment is at an all-time high, with more than 33 million Americans losing their jobs in the last two months. This has led to sinking consumer confidence and dwindling household income, which severely impacted spending activities and consequently, the leisure industry. Further, the rising macroeconomic uncertainties and bare minimum revenue prospects compelled companies to withdraw their guidance.
- In the current scenario, maintaining liquidity has become a herculean task for a number of industry participants. Most of the companies are cutting pay and furloughing employees. The industry participants are also suspending share repurchase programs and dividend payouts in an effort to improve liquidity. Moreover, supply chain disruptions due the pandemic are likely to hurt the industry in the near term.
- The industry is highly susceptible to changing weather conditions. For instance, demand for skiing is directly dependent on the amount and timing of snowfall. Further, swimming pool manufacturers always witness higher demand in summer. Additionally, there is a general rise in demand for outdoor and sports activities during the holiday season. Most companies in the recreational products space have specific quarters of revenue growth. For instance, Pool Corp.’s sales benefit from weather conditions in the second and third quarters of a calendar year.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Leisure and Recreation Products industry is grouped within the broader Consumer Discretionary sector.
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.
The Leisure and Recreation Products industry currently carries a Zacks Industry Rank #170, which places it in the bottom 33% of more than 253 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 industry’s position in the top 50% of the Zacks-ranked industries is a result of positive 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 Dec 31, 2019, the industry’s earnings estimate for the current year has declined14.7%.
Before we present a few stocks from the industry that you may want to consider despite the near-term woes, 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 outperformed the Zacks S&P 500 composite and its sector over the past year. Stocks in this industry have collectively gained 11% over the past year compared with the S&P 500 rally of 4%. Notably, theZacks Consumer Discretionary sector has declined 10% in the same time frame.
One Year Price Performance
On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing leisure products stocks, the industry trades at 44.46X compared with the S&P 500’s 21.14X and the sector’s 26.21X. Over the past five years, the industry has traded as high as 44.46X, and as low as 12.9X, with the median being at15.5X, as the charts show.
Forward Price To Earnings Ratio Compared With S&P
The near-term outlook for the industry looks drab due to the coronavirus pandemic. In fact, the industry participant’s earnings and revenues are likely to witness a sharp decline in the coming quarter.
Below are two stocks with positive earnings estimate revisions and a favorable Zacks Rank that investors can take a look at.
Peloton Interactive, Inc. (PTON - Free Report) , which provides interactive fitness products in North America, sports a Zacks Rank #1 (Strong Buy). In the past seven days, loss estimates for the current year have narrowed to 83 cents from 91 cents. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: PTON
Vista Outdoor Inc. (VSTO - Free Report) designs, manufactures, and markets consumer products for outdoor sports and recreation markets in the United States and internationally. The company carries a Zacks Rank #2 (Buy). The earnings estimates for the current year have been revised upward by 5.3% over the past two months to 40 cents. The figure indicates an improvement of 66.7% from the prior-year reported figure.
Price & Consensus: VSTO