With stronger-than-expected U.S. economic growth in the first quarter of 2019, the leisure stocks might interest investors. Steady rise in wages, lower unemployment and upbeat consumer confidence indicate that leisure stocks stand to rake in handsome gains.
Per the "third" estimate released by the Bureau of Economic Analysis, gross domestic product (GDP) increased at an annualized rate of 3.1% in the first quarter, compared with growth of 2.2% in the fourth quarter of 2018. The rise in real GDP was supported by increased personal consumption expenditures (PCE), non-residential fixed investment, exports and higher government spending.
Encouraging Leisure Demand
The industry is likely to gain from higher consumer spending, despite trade-war concerns. The University of Michigan's monthly survey shows that consumer sentiment came in at 98.2 in the month of June, higher than 97.9 recorded previously.
Apart from higher personal expenditure, increased demand for leisure products and services is also aiding the leisure industry of late. According to a report by Statista, revenues at the sports and outdoor space are expected to witness a CAGR of 9% from 2018 to 2023. User penetration stood at 12.2% in 2018 and is expected to reach 16.7% by 2023.
Per Deloitte, retailers of leisure goods have been witnessing robust growth since 2010. Furthermore, a report by Global Market Insights suggests that the boating market share in the United States will surpass $28.5 billion by 2024. Demand for powerboats, including small sterndrive, wakeboard boats and smaller fiberglass boats with jet technology, is rapidly increasing.
Further, Global Market Insights recently stated that the golf cart market is likely to increase from $1.5 billion in 2018 to around $2 billion by 2025. Shifting preference of tourists toward recreational sports and leisure activities will drive the golf cart market revenues. Growing number of resorts, comprising more than 18-hole golf courses, are fueling potential opportunities for increased participation.
Further, 2018 has been a record-breaking year for the lodging industry given an optimal demand supply balance. Per CBRE researchers, the hotel industry is likely to continue on a growth trajectory in 2019. Additionally, CBRE anticipates overall returns on hotels to be the highest for any commercial real-estate sector over the next three years.
Concerns at Play
While consumer demand is supported by a healthy economic growth, the consumer expectations sub-index stood at 89.3 in June, lower than 93.5 in May. The University of Michigan’s survey found out that consumers in the top third of the income distribution have shown apprehension over the ongoing tariff war.
Moreover, Trump administration's policy change related to traveling to Cuba remains a concern. Travel ban to Cuba will have a huge impact on cruise industry at the beginning of summer vacation season as demand in the region is very high. It will impact major cruise operators like Carnival (CCL - Free Report) , Royal Caribbean (RCL - Free Report) and Norwegian Cruise (NCLH - Free Report) .
Leisure Stocks Most Likely to Strive — 4 Key Picks
Although 2019 may witness slightly subdued economic growth as compared with 2018, recession and restrained demand is unlikely. Both the Fed's monetary policy and the Congress' fiscal policy aim to create enough demand to keep the economy whirring at a healthy pace.
Given this backdrop, we have used the Zacks Stock Screener to zero in on four promising stocks from the leisure industry. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have solid expected earnings growth rate for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Johnson Outdoors Inc. (JOUT - Free Report) , a developer, manufacturer and distributor of outdoor equipment carries a Zacks Rank #1. For 2019, the Zacks Consensus Estimate for the company’s earnings is pegged at $4.76, suggesting year-over-year growth of 1.5%.
Another Zacks Rank #1 stock, SeaWorld Entertainment, Inc. (SEAS - Free Report) , has been witnessing positive earnings estimate revisions for the current year. Over the past two months, analysts have raised earnings estimates by 19.4% to $1.48, suggesting that the company is expected to provide better returns in the future. Earnings in the current year are likely to increase 184.6% year over year. Upbeat consumer confidence is likely to benefit SeaWorld’s top line as it provides consumers with typical leisure-oriented theme parks.
Renowned boat maker, Malibu Boats, Inc. (MBUU - Free Report) , sports a Zacks Rank #1. For 2019, the Zacks Consensus Estimate for earnings has moved from $3.49 to $3.64 over the past two months. For 2019, earnings are predicted to surge 40% year over year.
Planet Fitness, Inc. (PLNT - Free Report) is one of the leading franchisors and operators of fitness centers in the United States. The company carries a Zacks Rank #2. For 2019, the Zacks Consensus Estimate for the company’s earnings is pegged at $1.55, suggesting year-over-year improvement of 27.1%.
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