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3 Leisure & Recreation Services to Gain from Robust Industry Trend
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The Zacks Leisure and Recreation Services industry is benefiting from the optimization of business processes, consistent strategic partnerships and digital initiatives. Moreover, robust demand for concerts, robust bookings for cruise operators and higher per capita spending at theme parks are supporting the industry. Firms like Royal Caribbean Cruises Ltd. (RCL - Free Report) , Cinemark Holdings, Inc. (CNK - Free Report) and AMC Entertainment Holdings, Inc. (AMC - Free Report) . However, high inflation and concern regarding the global economy hurt.
Industry Description
The Zacks Leisure and Recreation Services industry comprises various recreation providers, such as cruise, entertainment and media owners, golf-related leisure and entertainment venue businesses, theme park makers, resort operators and event organizers. Some industry players have ski and sports businesses, while others operate health and wellness centers onboard cruise ships and at destination resorts. Many companies are engaged in hospitality and related businesses. A few industry participants also provide weight management products and services. These companies primarily thrive on overall economic growth, which fuels consumer demand for products. Demand, highly dependent on business cycles, is propelled by a healthy labor market, rising wages and a growing disposable income.
3 Trends Shaping the Leisure & Recreation Services Industry's Future
Robust Demand Aids Cruise Operators: The cruise industry is benefiting from strong demand for cruising and accelerating booking volumes. The industry is benefiting from solid bookings concerning North American and European sailings. Also, strong pricing (on closer-in-demand) and solid onboard spending bode well for the industry. According to the Cruise Lines International Association (CLIA), the number of passengers embarking on cruises is projected to reach 35.7 million in 2024, suggesting an increase from 31.5 million in 2023. The projection calls for a 6% rise from the 2019 figures, reflecting the cruising industry’s upside.
Theme Park Operators & Live Entertainment Companies Bouncing Back: The theme park industry has been benefiting from robust demand. Theme park operators have been gaining from improving visitation. Consumer spending at theme parks continues to rise. The theme park sector is experiencing a boost from integrating technology, mainly through augmented and virtual reality. By incorporating innovative motion simulators, hydraulics and pneumatics and centering on enhancing customer experiences, there's anticipation of a surge in market demand in the coming years. Recently, an increasing number of theme parks have started incorporating advanced technology into their attractions and exhibits to elevate the overall experience. Live entertainment firms have benefited from pent-up live event demand and robust ticket sales.
High Inflation & Interest Rates: Inflation remains a critical issue in the U.S. economy, affecting consumers and businesses. The PCE price index increased 2.7% over the 12 months ending in April, maintaining the same 2.7% growth rate observed in March. The PCE price index is one of the inflation metrics monitored by the U.S. central bank to achieve its 2% target. The Federal Reserve has been adjusting its monetary policy to combat inflation. This includes raising interest rates to cool down the economy and reduce inflationary pressures.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Leisure and Recreation Services industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #94, which places it in the top 38% of 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright 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 two to one.
The industry’s position in the top 50% of the Zacks-ranked industries results from a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in the group’s earnings growth potential. Since Jan 31, 2024, the industry's earnings estimates for 2024 have gained 11%.
Before we present a few stocks that investors can consider, let’s analyze the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the S&P 500
The Zacks Leisure and Recreation Services industry underperformed the Zacks S&P 500 composite but has outperformed its sector in the past year. Stocks in the industry have gained 8.5% in the past year compared with the broader sector’s increase of 7.7%. The S&P 500 moved up 23.3% 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 9.51X compared with the S&P 500’s 12.05X and the sector’s 8.81X. In the past five years, the industry traded as high as 206.54X and as low as 5.95X, with the median being 12.48X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks to Keep an Eye On
Royal Caribbean Cruises: Based in Miami and incorporated in 1985, Royal Caribbean Cruises is a cruise company. It has been benefiting from solid demand for cruising and acceleration in booking volumes. Also, the emphasis on strong pricing (on closer-in-demand) bodes well. The company stated that the momentum continued into 2024, with booked load factors and rates surpassing those of all previous years. Looking ahead to the rest of 2024, the outlook appears highly promising, characterized by strong yield and earnings growth. With a projected 60% earnings growth, 2024 is anticipated to be a record-breaking year, in line with the company's strategic objectives. As of Mar 31, 2024, RCL had $6 billion in customer deposits compared with $5.3 billion as of Dec 31, 2023.
Shares of this Zacks Rank #1 (Strong Buy) company have surged 68.6% in the past year. In 2024, the company’s sales and earnings are expected to witness growth of 16.8% and 63.7%, respectively, from the prior year’s reported levels. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: RCL
Cinemark Holdings: The company, together with its subsidiaries, engages in the motion picture exhibition business. Cinemark's growth prospects are optimistic, driven by encouraging trends in consumer moviegoing, film volume recovery and strong content appeal. The company believes it is uniquely positioned to succeed due to its competitive strengths and various strategies for value creation.
Shares of this Zacks Rank #2 company have gained 16.8% in the past six months. In the past 30 days, earnings estimates for 2024 have witnessed upward revisions of 29.4%.
Price and Consensus: CNK
AMC Entertainment: The company is benefiting from enhanced food and beverage offerings at concession stands and Dine-In theaters, along with the expansion of theater locations across the United States, Europe and the Middle East.
Shares of this Zacks Rank #2 company have surged 31.6% in the past month. In fiscal 2024, the company’s earnings are expected to witness growth of 73.8% year over year.
Price and Consensus: AMC
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3 Leisure & Recreation Services to Gain from Robust Industry Trend
The Zacks Leisure and Recreation Services industry is benefiting from the optimization of business processes, consistent strategic partnerships and digital initiatives. Moreover, robust demand for concerts, robust bookings for cruise operators and higher per capita spending at theme parks are supporting the industry. Firms like Royal Caribbean Cruises Ltd. (RCL - Free Report) , Cinemark Holdings, Inc. (CNK - Free Report) and AMC Entertainment Holdings, Inc. (AMC - Free Report) . However, high inflation and concern regarding the global economy hurt.
Industry Description
The Zacks Leisure and Recreation Services industry comprises various recreation providers, such as cruise, entertainment and media owners, golf-related leisure and entertainment venue businesses, theme park makers, resort operators and event organizers. Some industry players have ski and sports businesses, while others operate health and wellness centers onboard cruise ships and at destination resorts. Many companies are engaged in hospitality and related businesses. A few industry participants also provide weight management products and services. These companies primarily thrive on overall economic growth, which fuels consumer demand for products. Demand, highly dependent on business cycles, is propelled by a healthy labor market, rising wages and a growing disposable income.
3 Trends Shaping the Leisure & Recreation Services Industry's Future
Robust Demand Aids Cruise Operators: The cruise industry is benefiting from strong demand for cruising and accelerating booking volumes. The industry is benefiting from solid bookings concerning North American and European sailings. Also, strong pricing (on closer-in-demand) and solid onboard spending bode well for the industry. According to the Cruise Lines International Association (CLIA), the number of passengers embarking on cruises is projected to reach 35.7 million in 2024, suggesting an increase from 31.5 million in 2023. The projection calls for a 6% rise from the 2019 figures, reflecting the cruising industry’s upside.
Theme Park Operators & Live Entertainment Companies Bouncing Back: The theme park industry has been benefiting from robust demand. Theme park operators have been gaining from improving visitation. Consumer spending at theme parks continues to rise. The theme park sector is experiencing a boost from integrating technology, mainly through augmented and virtual reality. By incorporating innovative motion simulators, hydraulics and pneumatics and centering on enhancing customer experiences, there's anticipation of a surge in market demand in the coming years. Recently, an increasing number of theme parks have started incorporating advanced technology into their attractions and exhibits to elevate the overall experience. Live entertainment firms have benefited from pent-up live event demand and robust ticket sales.
High Inflation & Interest Rates: Inflation remains a critical issue in the U.S. economy, affecting consumers and businesses. The PCE price index increased 2.7% over the 12 months ending in April, maintaining the same 2.7% growth rate observed in March. The PCE price index is one of the inflation metrics monitored by the U.S. central bank to achieve its 2% target. The Federal Reserve has been adjusting its monetary policy to combat inflation. This includes raising interest rates to cool down the economy and reduce inflationary pressures.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Leisure and Recreation Services industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #94, which places it in the top 38% of 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright 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 two to one.
The industry’s position in the top 50% of the Zacks-ranked industries results from a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in the group’s earnings growth potential. Since Jan 31, 2024, the industry's earnings estimates for 2024 have gained 11%.
Before we present a few stocks that investors can consider, let’s analyze the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the S&P 500
The Zacks Leisure and Recreation Services industry underperformed the Zacks S&P 500 composite but has outperformed its sector in the past year. Stocks in the industry have gained 8.5% in the past year compared with the broader sector’s increase of 7.7%. The S&P 500 moved up 23.3% 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 9.51X compared with the S&P 500’s 12.05X and the sector’s 8.81X. In the past five years, the industry traded as high as 206.54X and as low as 5.95X, with the median being 12.48X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks to Keep an Eye On
Royal Caribbean Cruises: Based in Miami and incorporated in 1985, Royal Caribbean Cruises is a cruise company. It has been benefiting from solid demand for cruising and acceleration in booking volumes. Also, the emphasis on strong pricing (on closer-in-demand) bodes well. The company stated that the momentum continued into 2024, with booked load factors and rates surpassing those of all previous years. Looking ahead to the rest of 2024, the outlook appears highly promising, characterized by strong yield and earnings growth. With a projected 60% earnings growth, 2024 is anticipated to be a record-breaking year, in line with the company's strategic objectives. As of Mar 31, 2024, RCL had $6 billion in customer deposits compared with $5.3 billion as of Dec 31, 2023.
Shares of this Zacks Rank #1 (Strong Buy) company have surged 68.6% in the past year. In 2024, the company’s sales and earnings are expected to witness growth of 16.8% and 63.7%, respectively, from the prior year’s reported levels. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: RCL
Cinemark Holdings: The company, together with its subsidiaries, engages in the motion picture exhibition business. Cinemark's growth prospects are optimistic, driven by encouraging trends in consumer moviegoing, film volume recovery and strong content appeal. The company believes it is uniquely positioned to succeed due to its competitive strengths and various strategies for value creation.
Shares of this Zacks Rank #2 company have gained 16.8% in the past six months. In the past 30 days, earnings estimates for 2024 have witnessed upward revisions of 29.4%.
Price and Consensus: CNK
AMC Entertainment: The company is benefiting from enhanced food and beverage offerings at concession stands and Dine-In theaters, along with the expansion of theater locations across the United States, Europe and the Middle East.
Shares of this Zacks Rank #2 company have surged 31.6% in the past month. In fiscal 2024, the company’s earnings are expected to witness growth of 73.8% year over year.
Price and Consensus: AMC