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3 Leisure & Recreation Services Stocks Braving Industry Odds
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The Zacks Leisure and Recreation Services industry has been severely impacted by the coronavirus pandemic. However, the industry is gradually coming out of the woods, courtesy of the reopening of the economy and ramped-up vaccinations. Industry players like Camping World Holdings, Inc. (CWH - Free Report) and RCI Hospitality Holdings, Inc. (RICK - Free Report) are likely to gain in their respective fields, supported by consistent strategic partnerships, digital initiatives and the reopening of the economy. Case in point, The Marcus Corporation (MCS - Free Report) has been gaining from robust performance of both Marcus Theatres and Marcus Hotels & Resorts, which continue to outperform their respective industries.
Industry Description
The Zacks Leisure and Recreation Services industry comprises a wide range of recreation providers such as cruise, entertainment and media owners, golf-related leisure and entertainment venue business, theme park makers, resort operators and event organizers. Some of the industry players also have ski and sports businesses, while some operate health and wellness centers onboard cruise ships and at destination resorts. Few of the companies are engaged in hospitality and related businesses. Some of the industry participants also provide weight management products and services. These companies primarily thrive on overall economic growth, which fuels consumer demand for products. In fact, demand, which is highly dependent on business cycles, is driven by a healthy labor market, rising wages and growing disposable income.
4 Trends Shaping the Future of Leisure & Recreation Services Industry
Cruise Operators Recovering From Pandemic Blues: The cruise industry bore the brunt of the coronavirus pandemic. Major cruise operators including Royal Caribbean Cruises Ltd. (RCL), Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) and Carnival Corporation & Plc (CCL - Free Report) have been affected severely by the crisis. However, these companies are slowly recovering on the back of phased resumption of services. For instance, Norwegian Cruise continues to execute phased relaunch plans for all 28 ships. The company was operating at nearly 40% of its capacity by the end of the third quarter of 2021. In the quarter third-quarter 2021, occupancy was 57.4%. It anticipates operating at 75% capacity by the end of 2021 and full fleet operation is expected by Apr 1, 2022. It’s 11 ships have resumed operations to date. Meanwhile, more than 500,000 guests have sailed via Royal Caribbean’s five brands since the restart of the operations. The company anticipates more than 1 million guests to sail by the end of this year. By the end of 2021, it expects 50 out of 61 ships to resume services across its five brands, which represents nearly 100% of its core itineraries and roughly 80% of worldwide capacity.
Liquidity a Major Factor Amid Pandemic: Maintaining liquidity has become a herculean task for a number of industry participants in the current scenario. Most of the companies are cutting pay and furloughing employees. The industry players are suspending share repurchase programs and dividend payouts to improve liquidity. Moreover, supply chain disruptions due the pandemic are likely to hurt the industry in the near term.
Rebounding Economy: The industry is likely to gain from decline in the unemployment rate. According to the U.S. Bureau of Labor Statistics, 531,000 new non-farm jobs were created last month, up from an expectation of 450,000. Unemployment rate declined to 4.6%. Leisure & Hospitality jobs gained 164,000. Surprisingly, consumer confidence in the United States rose in October primarily on the back of easing Delta variant concerns, improving labor market conditions, recovering U.S. economy and accelerated coronavirus vaccine rollouts. The Conference Board's measure of consumer confidence index stands at 113.8 in comparison to 109.8 in September. With restrictions being lifted, Americans are venturing out and engaging in outdoor recreation. This, in turn, has been bolstering consumer confidence consistently.
Theme Park Operators & Live Entertainment Companies Bouncing Back: The theme park industry, which was rattled by the coronavirus pandemic, has been benefiting from the reopening of parks. Theme Park operators have been gaining from improving visitation. Consumer spending at theme parks has been rising. Meanwhile, live entertainment firms have been benefiting from pent-up demand for live events and robust ticket sales. In third-quarter 2021, Live Nation Entertainment, Inc.’s (LYV - Free Report) overall ticket sales for major festivals were up 10% compared to 2019.
Zacks Industry Rank Indicates Dismal Prospects
The Zacks Leisure and Recreation Services industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #165, which places it in the bottom 34% of 251 Zacks industries.
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. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative 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 Apr 30, 2021, the industry’s loss estimates for the current year have moved north by 13.9%.
Despite the drab near-term prospects, we will present a few stocks that investors can consider adding to their portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms the S&P 500
The Zacks Leisure and Recreation Services industry has underperformed the Zacks S&P 500 composite but outperformed its sector over the past year. Stocks in the industry have collectively gained 28.8% in the past year compared with the broader sector’s growth of 9.5%. The S&P 500 has rallied 35.6% in the said time frame.
One Year Price Performance
Valuation
On the basis of the forward 12-month EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization), which is a commonly used multiple for valuing debt-laden leisure service stocks, the industry trades at 50.99X compared with the S&P 500’s 16.42X and the sector’s 11.63X. Over the past five years, the industry has traded as high as 55.58X and as low as 5.8X, with the median being at 9.44X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks Worth Betting On
Camping World Holdings: Headquartered in Lincolnshire, IL, the company was founded in 1966. Through its subsidiaries, Camping World operates as an outdoor and camping retailer. The company has been benefiting from the launch of a fresh peer-to-peer RV rental marketplace and a mobile service marketplace. It has also been investing heavily in product development. Driven by the aforementioned efforts, the company’s revenues improved 14.2% in third-quarter 2021.
RCI Hospitality Holdings: Based in Houston, TX, the company operates through Nightclubs, Bombshells and Other segments. The company has been gaining from robust performance of bombshells and nightclubs. The company recently completed the acquisitions of 11 adult nightclubs in six states. Following the buyouts, its current unit count has increased by 23% to 58 locations.
Shares of this Zacks Rank #2 company have soared 174.3% in the past year. The company’s earnings for fiscal 2021 are likely to increase 523.5%.
Price and Consensus: RICK
The Marcus: Headquartered in Milwaukee, WI, it owns and operates movie theatres, and hotels and resorts in the United States. The company has been gaining from accelerated recovery in both Marcus Theatres and Marcus Hotels & Resorts. The company has also been witnessing improvement in attendance as film studios continue to release exciting new films.
Shares of this Zacks Rank #2 company have gained 98% in the past year. The company’s earnings for fiscal 2021 are likely to increase 55.2%. The consensus mark for fiscal 2021 loss has narrowed by 28% in the past 30 days, which highlights analysts’ optimism regarding the stock’s growth potential.
Price and Consensus: MCS
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3 Leisure & Recreation Services Stocks Braving Industry Odds
The Zacks Leisure and Recreation Services industry has been severely impacted by the coronavirus pandemic. However, the industry is gradually coming out of the woods, courtesy of the reopening of the economy and ramped-up vaccinations. Industry players like Camping World Holdings, Inc. (CWH - Free Report) and RCI Hospitality Holdings, Inc. (RICK - Free Report) are likely to gain in their respective fields, supported by consistent strategic partnerships, digital initiatives and the reopening of the economy. Case in point, The Marcus Corporation (MCS - Free Report) has been gaining from robust performance of both Marcus Theatres and Marcus Hotels & Resorts, which continue to outperform their respective industries.
Industry Description
The Zacks Leisure and Recreation Services industry comprises a wide range of recreation providers such as cruise, entertainment and media owners, golf-related leisure and entertainment venue business, theme park makers, resort operators and event organizers. Some of the industry players also have ski and sports businesses, while some operate health and wellness centers onboard cruise ships and at destination resorts. Few of the companies are engaged in hospitality and related businesses. Some of the industry participants also provide weight management products and services. These companies primarily thrive on overall economic growth, which fuels consumer demand for products. In fact, demand, which is highly dependent on business cycles, is driven by a healthy labor market, rising wages and growing disposable income.
4 Trends Shaping the Future of Leisure & Recreation Services Industry
Cruise Operators Recovering From Pandemic Blues: The cruise industry bore the brunt of the coronavirus pandemic. Major cruise operators including Royal Caribbean Cruises Ltd. (RCL), Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) and Carnival Corporation & Plc (CCL - Free Report) have been affected severely by the crisis. However, these companies are slowly recovering on the back of phased resumption of services. For instance, Norwegian Cruise continues to execute phased relaunch plans for all 28 ships. The company was operating at nearly 40% of its capacity by the end of the third quarter of 2021. In the quarter third-quarter 2021, occupancy was 57.4%. It anticipates operating at 75% capacity by the end of 2021 and full fleet operation is expected by Apr 1, 2022. It’s 11 ships have resumed operations to date. Meanwhile, more than 500,000 guests have sailed via Royal Caribbean’s five brands since the restart of the operations. The company anticipates more than 1 million guests to sail by the end of this year. By the end of 2021, it expects 50 out of 61 ships to resume services across its five brands, which represents nearly 100% of its core itineraries and roughly 80% of worldwide capacity.
Liquidity a Major Factor Amid Pandemic: Maintaining liquidity has become a herculean task for a number of industry participants in the current scenario. Most of the companies are cutting pay and furloughing employees. The industry players are suspending share repurchase programs and dividend payouts to improve liquidity. Moreover, supply chain disruptions due the pandemic are likely to hurt the industry in the near term.
Rebounding Economy: The industry is likely to gain from decline in the unemployment rate. According to the U.S. Bureau of Labor Statistics, 531,000 new non-farm jobs were created last month, up from an expectation of 450,000. Unemployment rate declined to 4.6%. Leisure & Hospitality jobs gained 164,000. Surprisingly, consumer confidence in the United States rose in October primarily on the back of easing Delta variant concerns, improving labor market conditions, recovering U.S. economy and accelerated coronavirus vaccine rollouts. The Conference Board's measure of consumer confidence index stands at 113.8 in comparison to 109.8 in September. With restrictions being lifted, Americans are venturing out and engaging in outdoor recreation. This, in turn, has been bolstering consumer confidence consistently.
Theme Park Operators & Live Entertainment Companies Bouncing Back: The theme park industry, which was rattled by the coronavirus pandemic, has been benefiting from the reopening of parks. Theme Park operators have been gaining from improving visitation. Consumer spending at theme parks has been rising. Meanwhile, live entertainment firms have been benefiting from pent-up demand for live events and robust ticket sales. In third-quarter 2021, Live Nation Entertainment, Inc.’s (LYV - Free Report) overall ticket sales for major festivals were up 10% compared to 2019.
Zacks Industry Rank Indicates Dismal Prospects
The Zacks Leisure and Recreation Services industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #165, which places it in the bottom 34% of 251 Zacks industries.
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. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative 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 Apr 30, 2021, the industry’s loss estimates for the current year have moved north by 13.9%.
Despite the drab near-term prospects, we will present a few stocks that investors can consider adding to their portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms the S&P 500
The Zacks Leisure and Recreation Services industry has underperformed the Zacks S&P 500 composite but outperformed its sector over the past year. Stocks in the industry have collectively gained 28.8% in the past year compared with the broader sector’s growth of 9.5%. The S&P 500 has rallied 35.6% in the said time frame.
One Year Price Performance
Valuation
On the basis of the forward 12-month EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization), which is a commonly used multiple for valuing debt-laden leisure service stocks, the industry trades at 50.99X compared with the S&P 500’s 16.42X and the sector’s 11.63X. Over the past five years, the industry has traded as high as 55.58X and as low as 5.8X, with the median being at 9.44X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks Worth Betting On
Camping World Holdings: Headquartered in Lincolnshire, IL, the company was founded in 1966. Through its subsidiaries, Camping World operates as an outdoor and camping retailer. The company has been benefiting from the launch of a fresh peer-to-peer RV rental marketplace and a mobile service marketplace. It has also been investing heavily in product development. Driven by the aforementioned efforts, the company’s revenues improved 14.2% in third-quarter 2021.
Shares of this Zacks Rank #2 (Buy) company have gained 80% in the past year. In the past 60 days, earnings estimates for 2021 have been revised upward by 4.5% to $6.18. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: CWH
RCI Hospitality Holdings: Based in Houston, TX, the company operates through Nightclubs, Bombshells and Other segments. The company has been gaining from robust performance of bombshells and nightclubs. The company recently completed the acquisitions of 11 adult nightclubs in six states. Following the buyouts, its current unit count has increased by 23% to 58 locations.
Shares of this Zacks Rank #2 company have soared 174.3% in the past year. The company’s earnings for fiscal 2021 are likely to increase 523.5%.
Price and Consensus: RICK
The Marcus: Headquartered in Milwaukee, WI, it owns and operates movie theatres, and hotels and resorts in the United States. The company has been gaining from accelerated recovery in both Marcus Theatres and Marcus Hotels & Resorts. The company has also been witnessing improvement in attendance as film studios continue to release exciting new films.
Shares of this Zacks Rank #2 company have gained 98% in the past year. The company’s earnings for fiscal 2021 are likely to increase 55.2%. The consensus mark for fiscal 2021 loss has narrowed by 28% in the past 30 days, which highlights analysts’ optimism regarding the stock’s growth potential.
Price and Consensus: MCS