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3 Leisure Stocks Set to Beat Estimates This Earnings Season

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The leisure industry, which comprises companies providing recreational services such as swimming pools, golf courses, boats, outdoor spaces, cruises, travel etc., primarily thrives on overall economic growth and consumer spending.

A steady rise in wages, lower unemployment and upbeat consumer confidence indicate that leisure stocks are poised to record handsome gains. This is because these stocks are part of a cyclical industry where demand for goods and services is relatively elastic and any significant change in the general market affects consumers’ preference.

Will the Leisure Space Gain From Economic Growth?

Per the advance 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 4.2% growth in the second quarter.

While real GDP was favored by increased personal consumption expenditures (PCE), private inventory investment, state and local government spending, federal government spending, and non-residential fixed investment, it was slightly affected by a downturn in exports and a deceleration in non-residential fixed investment.

Meanwhile, Federal Reserve raised its outlook on U.S. economic growth. Current year economic growth is currently estimated to be 3.1%. This is likely to support the industry’s growth in 2018.

Speed Breakers on the Way

Despite an upbeat consumer spending scenario, a few concerns remain. The Consumer Discretionary Sector, encompassing all the leisure sub-industries, has underperformed the S&P 500 over the past year. The sector gained 0.3% in the past year compared with the S&P 500’s rally of 3.3%.

The tricky nature of discretionary spending has been weighing on the sector’s performance. Also, tariff concerns have been affecting the stocks in the leisure space of late. Moreover, Trump’s stringent policies on immigration and tourist visas seem to have compelled international visitors to rethink their vacation plans to the United States. There has been a continued slowdown in U.S.-bound air travel bookings ever since Trump took charge. Also, online searches by prospective travelers to the United States have declined sharply.

We note that, so far this year, overall inflation and commodity price increases have been checked by a relatively stronger dollar. However, household wages, which have started to tick up, have not significantly gone up to combat the expected inflationary pressure. This puts the leisure industry in a tricky position for quite some time now.

Q3 Expectations

Most of the Zacks sectors (14 out of 16) are expected to perform well in the third quarter of 2018. Leisure stocks, which are part of the broader Zacks Consumer Discretionary sector, seem to be on a solid footing as well. According to the Earnings Preview report, as of Oct 24, the sector’s aggregate third-quarter EPS is expected to increase 9.2% compared with 18.1% in the last reported quarter. Revenues are expected to increase 7.7%, slightly higher than 6.4% in the second quarter. Margins in the quarter under review are anticipated to expand 0.2% compared with the previous quarter’s increase of 1.1%.

How to Pick the Right Stocks?

Amid a wide range of leisure stocks, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver better-than-expected earnings.

While it is impossible to be sure of the outperformers, our proprietary methodology — positive Earnings ESP along with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Key Picks

Here are some leisure and recreation providers set to report third-quarter 2018 earnings that might interest investors.

Live Nation Entertainment, Inc. (LYV - Free Report) , an entertainment provider, has a Zacks Rank #3 and an Earnings ESP of +12.06%, suggesting that the company is likely to post a beat this time around. Live Nation, which is scheduled to report quarterly numbers on Nov 1, surpassed estimates in two of the trailing four quarters, recording an average beat of 9.1%. The Zacks Consensus Estimate for earnings in the quarter to be reported is pegged at 64 cents, indicating a 20.8% year-over-year increase. You can see the complete list of today’s Zacks #1 Rank stocks here.

Live Nation Entertainment, Inc. Price and EPS Surprise

U.S. based theme park and entertainment company, SeaWorld Entertainment, Inc. (SEAS - Free Report) is scheduled to report results on Nov 5. The company sports a Zacks Rank #1 and has an Earnings ESP of +7.75%, that suggests a likely beat in the to-be-reported quarter. SeaWorld surpassed the consensus estimate in two of the trailing four quarters, recording an average beat of 1.2%. For the quarter to be reported, earnings estimates are pegged at $1.11, projecting 73.4% growth from the year-ago quarter.

SeaWorld Entertainment, Inc. Price and EPS Surprise

Activision Blizzard, Inc. (ATVI - Free Report) , an interactive entertainment company, is scheduled to report results on Nov 8. With a Zacks Rank #3 and an Earnings ESP of +1.75%, the company is likely to beat estimates in the to-be-reported quarter. In fact, it beat the Zacks Consensus Estimate in each of the trailing four quarters with an average positive surprise of 25.2%. For the third quarter, the consensus estimate is pegged at 51 cents, indicating 15% year-over-year decline.

Activision Blizzard, Inc Price and EPS Surprise

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