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; and 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 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 Leisure & Recreation Services Industry's Future
Interest Rate Cut to Aid Leisure Industry: The Federal Reserve reduced interest rates for the second time this year, lowering the benchmark rate by 25 basis points to 4.5-4.75%. This follows a 50-basis-point reduction in September 2024. According to the Fed, economic activity continues to grow at a steady pace. Although the unemployment rate has moved up slightly, it remains low. Inflation has moderated closer to the Fed's target, though it still sits slightly above the desired levels.
Robust Demand Helps 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, the number of passengers embarking on cruises is projected to reach 35.7 million in 2024, suggesting an increase from 31.7 million in 2023.
Theme Park Operators & Live Entertainment Companies Bouncing Back: The theme park industry is 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, particularly through augmented and virtual reality. Live entertainment firms have benefited from pent-up live event demand and robust ticket sales.
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 #22, which places it in the top 9% of 249 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright, bright-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.
Before we present a few stocks that investors can consider, let us 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 but outperformed its sector in the past year. Stocks in the industry have collectively gained 25.2% in the past year compared with the broader sector’s rally of 15.8%. The S&P 500 has risen 29.2% in the said time frame.
One-Year Price Performance
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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 56.37X compared with the S&P 500’s 24.81X and the sector’s 16.07X. In the past five years, the industry has traded as high as 61.56X and as low as 6.46X, with the median being 9.77X, as the charts show.
EV/EBITDA Ratio (F12M) Compared With S&P
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4 Leisure & Recreation Services Stocks to Keep an Eye On
Carnival: The company has been benefiting from sustained demand strength, increased booking volumes at significantly higher prices and the base loading strategy. In third-quarter fiscal 2024, Carnival reported a solid booked position for the remainder of the year, with pricing and occupancy considerably higher than the 2023 reported levels. Also, the company’s focus on marketing campaigns bodes well.
Shares of this Zacks Rank #1 (Strong Buy) company have moved up 68.2% in the past year. In fiscal 2025, the company’s sales and earnings are expected to witness growth of 3.5% and 26.8% year over year, respectively.
Price and Consensus: CCL
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Royal Caribbean: Based in Miami and incorporated in 1985, RCL is a cruise company. It has been benefiting from strong cruising demand from new and loyal guests, and robust booking trends. Strength in consumer spending onboard and pre-cruise purchases bodes well. Going forward, the company emphasized investing in a modern digital travel platform to streamline the vacation booking process for customers and expand wallet share.
This Zacks Rank #2 (Buy) stock has skyrocketed 119% in the past year. The company’s 2024 sales and earnings are expected to witness growth of 18.6% and 71.6%, respectively, from the prior year’s reported levels.
Price and Consensus: RCL
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Norwegian Cruise: The company has been benefiting from strong demand, high pricing and increased booking volumes, leading to record advance ticket sales. Its focus on fleet expansion efforts and digital initiatives bodes well. The company intends to focus on marketing efforts to drive demand and high-value bookings. Norwegian Cruise’s focus on fleet expansion efforts and partnerships bodes well.
Shares of this Zacks Rank #2 company have surged 78.5% in the past year. The company’s 2024 earnings and sales are expected to witness year-over-year growth of 10.2% and 8%, respectively.
Price and Consensus: NCLH
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Cinemark: The company, together with its subsidiaries, engages in the motion picture exhibition business. Cinemark's growth prospects are optimistic, driven by encouraging trends in moviegoing, film volume recovery and strong content appeal. The company believes that 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 upsurged 125.9% in the past year. In the past 30 days, Cinemark's 2024 earnings estimates have witnessed upward revisions of 37%.
Price and Consensus: CNK
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7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
Carnival Corporation (CCL) : Free Stock Analysis Report
Norwegian Cruise Line Holdings Ltd. (NCLH) : Free Stock Analysis Report
Cinemark Holdings Inc (CNK) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
