The leisure segment continues on the road to recovery following the huge slump during the pandemic. But the market is dependent on consumer spending that is being hit by the still-high inflation rate, as well as the Fed’s attempts to tame it.

Therefore, we’re in a situation where inflation is making everything in the grocery store and the gas station expensive, leaving less for leisure spending. On the other hand, rate hikes by the Fed is increasing costs for companies, some of which are expected to, increasingly, cut back production and/or lay off people, which is the definition of a recession.

However, leisure industry watchers and researchers, including those covering hotels, gaming and such other companies believe that the Fed will achieve its soft landing. Even baking in a soft recession in 2023, they’re still expecting relatively high occupancy, revenue per available room (RevPAR) and hardly any impact on the room rate.

STR and Tourism Economics said in November that the “mild” recession they’re expecting next year lowered their 2023 hotel occupancy rate projections to 63.8% from 64.6% projected earlier. The daily room rate is now expected to be $151, down from the previously forecasted $152. RevPAR is expected to reach $96, below the previously forecasted $98 but 11.6% above 2019 levels.

None of these reductions seem significant. The report says that the strong numbers are supported by continued recovery in business travel, including group travel for business but “the ongoing prioritization of leisure travel” is also playing a role.  

Therefore, there is a certain amount of pent-up demand as senior citizens and international travelers finally get over the pandemic scare and start taking their trips. At the same time, hoteliers are short-staffed because they have been laying off people during the downturn and some of these people have found other employment. Therefore, not everybody is coming back. These factors are combining to maintain pricing.

As far as entertainment is concerned, the traditional gaming companies are optimistic about a strong year. Although digitization continues to eat into the traditional business, larger players have been adjusting with their own digital offerings. Evolving payment systems are supporting this change. However, people (particularly the demographics that have stayed away thus far) do want to get physical again, which is good for casino operators. This strength is currently expected to offset any economic weakness next year.

Going by analysts’ estimate revisions trends, its apparent that they hold the same view. Therefore, rather than lowering estimates to reflect the recession (however soft), they have, in many cases been raising. And current estimates are actually representative of growth next year, as highlighted below:

Hilton Grand Vacations Inc. (HGV Quick QuoteHGV - Free Report)

Zacks has a #1 (Strong Buy) ranked Hilton Grand Vacations, is a timeshare company that develops, markets, sells and manages vacation ownership resorts primarily under the Hilton Grand Vacations brand.

All of the analysts covering this stock have a buy rating on it. And in the last 60 days, they’ve raised their earnings estimates by 50 cents (19.3%) for 2022 and by 15 cents (4.0%) for 2023. This represents 60.9% earnings growth for 2022 on 63.8% revenue growth and 24.6% earnings growth for 2023 on 4.7% revenue growth.   

The average target price set by analysts is $60.00, which is 51.9% above the current price of $39.50.

Caesars Entertainment, Inc. (CZR Quick QuoteCZR - Free Report)

Caesars Entertainment is a gaming and hospitality company in the U.S. It operates casinos comprising poker, keno, and race, and online sportsbooks; dining venues, bars, nightclubs and lounges; hotels; and entertainment venues.

Around 75% of analysts covering this stock have a Buy rating on it, although they have slightly moderated their estimates for Caesars. They expect the Zacks Rank #2 (Buy) company to increase its losses this year despite revenue growth of 14.0%. In 2023 however, it is expected to bounce back with 5.6% revenue growth and 128.7% earnings growth.

The average target price set by analysts is $65.33 and represents 45.1% upside from the current price.

Wyndham Hotels & Resorts, Inc. (WH Quick QuoteWH - Free Report)

Wyndham Hotels & Resorts is a hotel franchisor operating globally. It has two operating segments. The Hotel Franchising segment licenses its lodging brands and provides related services to third-party hotel owners and others. The Hotel Management segment provides hotel management services for full-service and limited-service hotels.

All of the analysts covering this stock have a buy rating on it. They have raised their estimates by a couple of cents for both 2022 and 2023. While revenue is expected to decline in both years, earnings is expected to grow 22.2% this year and 3.0% in the next. The surprise history is good: Wyndham has topped estimates in each of the last four quarters at an average rate of 24.9%.

The $88.06 average target price set by analysts represents a 26.9% upside from the current price of $69.38.

Bowlero Corp. (BOWL Quick QuoteBOWL - Free Report)

Bowlero Corp. operates bowling entertainment centers under the AMF, Bowlmor Lanes and Bowlero brand names. The company also provides hosting and overseeing professional and non-professional bowling tournaments and related broadcasting.

All of the analysts covering this stock have a buy rating on it. For the year ending in June 2023, they’ve raised the earnings estimate by a penny in the last 60 days. For the following year, they’ve raised by a couple of cents. This represents earnings decline of 3.6% on 11.5% revenue growth in the current year. Next year, earnings are expected to grow 24.1% on revenue growth of 8.4%. The surprise history is solid, averaging 166.7% in the last four quarters.

The target price of $16.75 represents 31.1% upside from the current price of $12.78.

Price Performance Year-to-Date

Image Source: Zacks Investment Research