Zacks Industry Outlook Highlights Live Nation Entertainment, Cruises and Madison Square Garden Entertainment
For Immediate Release
Chicago, IL – January 24, 2023 – Today, Zacks Equity Research discusses Live Nation Entertainment, Inc. LYV, Royal Caribbean Cruises Ltd. RCL and Madison Square Garden Entertainment Corp. MSGE.
Industry: Leisure & Recreation Services
The Zacks Leisure and Recreation Services industry is benefiting from the optimization of business processes, consistent strategic partnerships and digital initiatives. Robust demand for concerts and improving bookings for cruise operators are aiding the industry. Industry players like Live Nation Entertainment, Inc., Royal Caribbean Cruises Ltd. and Madison Square Garden Entertainment Corp. 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.
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. Nevertheless, 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.
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, has been 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 U.S. Economy: A slowdown in the economy is likely to hurt the industry. Apprehensions about a global slowdown and a possible recession loom over the stock market. Inflation in the United States remains the biggest challenge for the economy. The Fed hinted that it would slow down the pace of the interest rate rise with more evidence of easing inflation. However, it continues to support increasing interest rates in 2023.
The consumer price index (CPI) for December 2022 came in at 5.7% after record highs of 8.2% in September and 8.3% in August. Yet, the numbers are far from the Federal Reserve's ambitious target of 2% for a strong economy. Inflationary 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 #70, which places it in the bottom 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. Since Nov 30, 2022, the industry's loss estimates for the current year have narrowed by 1.2%.
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 26.5% in the past year compared with the broader sector's decline of 20%. The S&P 500 has declined 11.2% in the said time frame.
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 9.71X compared with the S&P 500's 10.26X and the sector's 8.04X. Over the past five years, the industry has traded as high as 195.37X and as low as 5.77, with the median being 12.21X.
3 Leisure and Recreation Services Stocks Worth Betting On
Live Nation Entertainment: Headquartered in Beverly Hills, CA, Live Nation Entertainment operates as a live entertainment company. The company has been benefiting from pent-up demand for live events and robust ticket sales. This, along with increased demand for digital ticketing and contactless transactions, is likely to contribute to an upside.
Shares of this Zacks Rank #2 (Buy) company have declined 31% in the past year. In 2023, the company's sales and earnings are expected to witness a growth of 3.9% and 144.9%, from the prior year's expected levels. You can see the complete list of today's Zacks #1 Rank stocks here.
Royal Caribbean: Headquartered in Miami, Florida, the company has been benefiting from strong demand for cruising and acceleration in booking volumes. The company's emphasis on technological innovations and product development initiatives bode well. During the third quarter, the company reported accelerating demand for sailings in 2023.
Shares of this Zacks Rank #2 company have declined 20% in the past year. In 2023, the company's sales and earnings are expected to witness a growth of 43.3% and 137.9%, from the prior year's expected levels.
Madison Square Garden Entertainment: The company is engaged in the entertainment business. The company is benefiting from robust demand for its entertainment segment. The company said that it's witnessing robust demand for its portfolio of assets and brands.
Shares of this Zacks Rank #2 company have declined 33.3% in the past year. In fiscal 2023, the company's sales and earnings are expected to witness a growth of 13% and 65.6%, year over year.
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Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
Live Nation Entertainment, Inc. (LYV) : Free Stock Analysis Report
Madison Square Garden Entertainment Corp. (MSGE) : Free Stock Analysis Report
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