3 Top Stocks From the Promising Leisure & Recreation Services Industry
The Zacks Leisure and Recreation Services industry is benefiting from the optimization of business processes, consistent strategic partnerships and digital initiatives. Robust concert demand, improving bookings for cruise operators and higher per capita spending at theme parks are aiding the industry. Industry players like Planet Fitness, Inc. PLNT, Six Flags Entertainment Corporation SIX and Cedar Fair, L.P. FUN are likely to gain in their respective fields owing to the factors mentioned above. However, the industry has been bearing the brunt of high costs and the slow U.S. economy.
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 industry players have ski and sports businesses, while some operate health and wellness centers onboard cruise ships and at destination resorts. Many companies are engaged in hospitality and related businesses. A few 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. Demand, which is highly dependent on business cycles, is driven by a healthy labor market, rising wages and growing disposable income.
3 Trends Shaping the Future of the Leisure & Recreation Services Industry
Cruise Operators Recovery Continues: The cruise industry has been severely impacted by the coronavirus pandemic. Cruise operators are slowly recovering, backed by the resumption of services. Strong demand for cruising, acceleration in booking volumes and relaxation in COVID-related protocols bode well for cruise operators. However, the closure of cruise operations in China is hurting the industry. The cruise operators’ operations are likely to be influenced by the uncertainty related to the Russian invasion of Ukraine. Geopolitical developments have pushed fuel curves higher. Due to the war, most cruise operators have decided to withdraw all activity in Russia.
Theme Park Operators & Live Entertainment Companies Bouncing Back: The theme park industry, which was rattled by the coronavirus pandemic, is benefiting from robust demand. Theme park operators have been gaining from improving visitation. Consumer spending at theme parks has been rising. Live entertainment firms have been benefiting from pent-up demand for live events and robust ticket sales.
Concerns of Slowing Global Economy & High Inflation: A slowdown in the global economy is likely to hurt the industry. Worries about a global slowdown and a possible recession loom large over the stock market. Inflation in the United States remains the biggest challenge for the economy. In March, U.S. inflation declined to 5% from 6% in February. Yet, the numbers are far from the Federal Reserve’s ambitious target of 2% for a strong economy. Cost increases in labor, compensation, healthcare, freight and rent are leading to higher expenses.
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 #71, which places it in the top 28% 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 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 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is the result of a negative 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.
Before we present a few stocks that investors can take a look at, 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 has underperformed the Zacks S&P 500 composite and its sector over the past year. Stocks in the industry have collectively declined 25.3% in the past year compared with the broader sector’s decline of 14.7%. The S&P 500 has declined 7% 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 11.06X compared with the S&P 500’s 11X and the sector’s 8.04X. In the past five years, the industry has traded as high as 195.37X and as low as 5.77, with the median being 12.52X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
3 Leisure and Recreation Services Stocks Worth Betting On
Cedar Fair: Headquartered in Sandusky, OH, the company is a leader in regional amusement parks, water parks and immersive entertainment. The company is benefiting from an increase in attendance and in-park per capita spending. In the fourth quarter, in-park per capita spending increased 3% year over year due to robust guest spending on admissions and food and beverage.
Shares of this Zacks Rank #1 (Strong Buy) company have declined 20.7% in the past year. In 2023, the company’s sales and earnings are expected to witness growth of 3.2% and 3.2%, from the prior year’s expected levels. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: FUN
Six Flags Entertainment: Based in Arlington, TX, the company owns and operates regional theme and waterparks under the Six Flags name. The company is benefiting from pricing, events, marketing, and cost controls.
Shares of this Zacks Rank #2 company have declined 37.7% in the past year. In 2023, the company’s sales and earnings are expected to witness growth of 9.1% and 34.8%, from the prior year’s expected levels.
Price and Consensus: SIX
Planet Fitness: Planet Fitness, headquartered in Hampton, NH, was formed in 1992. It is one of the leading franchisors and operators of fitness centers in the United States. The company is benefiting from increased membership levels, robust digitalization, strategic efforts and a solid brand presence. Given the growth potential on changing market dynamics and tailwinds related to health and wellness, the company remains optimistic for a 4,000-plus domestic store opportunity over the long term.
Shares of this Zacks Rank #2 company have declined 11% in the past year. In fiscal 2023, the company’s sales and earnings are expected to increase 13.8% and 14.2%, year over year.
Price and Consensus: PLNT
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Planet Fitness, Inc. (PLNT) : Free Stock Analysis Report
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