The leisure industry is widely diversified in nature and primarily thrives on overall economic growth and consumer spending. It houses companies providing recreational products and services such as swimming pools, golf courses, boats, outdoor spaces, cruises and travel to name a few. Demand for such services is relatively elastic.
Notably, steady rise in wages, lower unemployment and upbeat consumer confidence bode well for leisure stocks. Given the favorable economic scenario, one can expect these companies to benefit from increased consumer demand in the quarter to be reported.
Also, higher personal expenditure and, improved demand for leisure products and services are aiding the leisure industry of late. Per National Marine Manufacturers Association, boat manufacturers are continuously increasing production to support high demand. Rise in demand for powerboats, including small sterndrive, wakeboard boats and smaller fiberglass boats with jet technology is expected to boost the performance of leisure industry players in the fourth quarter of 2018. Cruise companies are likely to gain from solid booking and pricing trends in the same time frame.
However, tariff remains a concern for key players in this space. Moreover, since most companies within the leisure and recreation service space heavily rely on debt-financing because of the capital-intensive nature of their businesses, the rising interest rate environment might prove detrimental to them.
The majority of the Zacks sectors (13 out of 16) is expected to perform well in the fourth quarter of 2018. The leisure industry, which is part of the broader Zacks Consumer Discretionary sector, seems to be on a solid footing as well. According to the latest Earnings Preview, the sector’s aggregate fourth-quarter EPS is expected to increase 9.5% compared with 20.2% in the last reported quarter. Revenues are anticipated to increase 4.6%, lower than 6.4% in the third quarter.
How to Make the Right Pick?
Based on the above-mentioned positives, it would be a good idea to add leisure stocks with the potential of reporting better-than-expected earnings in fourth-quarter 2018 to one’s portfolio.
Nonetheless, given the wide range of companies in this space, the task is by no means easy. While it is impossible to be sure of the outperformers, our proprietary methodology — a 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%.
Here are a few leisure companies that might interest investors.
Royal Caribbean Cruises Ltd. (RCL - Free Report) is likely to report fourth-quarter 2018 results on Jan 23. Apart from carrying a Zacks Rank #3, the company has an Earnings ESP of +1.41% that increases our predictive power for a beat this quarter. Moreover, the consensus estimate for earnings is pegged at $1.51, projecting 12.7% growth from the year-ago level. In the trailing four quarters, the company’s earnings have surpassed the consensus mark by an average of 10.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Royal Caribbean Cruises Ltd. Price and EPS Surprise
Brunswick Corporation (BC - Free Report) has an Earnings ESP of +3.72% and a Zacks Rank #3, indicating a likely earnings beat in the fourth quarter of 2018. Also, earnings estimate for the quarter is pegged at 90 cents, mirroring 28.6% year-over-year growth. In two of the preceding three quarters, the company outshined bottom-line expectations, the average beat being 3.6%. Brunswick is scheduled to release its quarterly numbers on Jan 31.
Brunswick Corporation Price and EPS Surprise
Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) is likely to report fourth-quarter 2018 results on Feb 28. The company has a Zacks Rank #3 and an Earnings ESP of +1.74%. The consensus estimate for fourth-quarter earnings is pegged at 79 cents, reflecting 16.2% year-over-year improvement. Moreover, the company delivered a positive earnings surprise in each of the trailing four quarters, the average being 9.8%.
Norwegian Cruise Line Holdings Ltd. Price and EPS Surprise
Cinemark Holdings, Inc. (CNK - Free Report) has an Earnings ESP of +10.66% and a Zacks Rank #1, indicating a likely earnings beat in the fourth quarter of 2018. The consensus estimate for earnings is pegged at 41 cents, mirroring 10.7% growth from the year-ago level. Additionally, the company delivered a positive earnings surprise in two of the trailing four quarters, the average beat being 19.3%. The company is likely to report earnings on Feb 22.
Cinemark Holdings Inc Price and EPS Surprise
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