three Leisure & Recreation Merchandise Shares to Watch Regardless of Business Woes – October 13, 2022

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The Zacks leisure and recreation products industry is suffering from concerns about the slowing US economy. High inflation continues to hurt most industries, and leisure and recreation products are no exception. The decline in new boat sales is a cause for concern. However, the increase in sales of fitness products due to the increasing awareness of health and fitness among people bodes well. Industry participants that design, market, sell and distribute products for the outdoor and leisure market are experiencing robust demand. like stocks Academy Sports and Outdoors, Inc. (ASO quick offerASO free report) Acushnet Holdings Corp. (GOLF Quick quoteGOLF Free report) and Vista Outdoor Inc. (VSTO quick quoteVSTO Free Report) should benefit from the above trend.

Industry Description

The Zacks Leisure and Recreation Products industry includes companies that provide amusement and leisure products, swimming pools, marine products, golf courses, boat repair and maintenance services and other ancillary services, including indoor and outdoor storage and shipping, as well as boat and personal watercraft rentals. Some of the industry participants manufacture outdoor gear and apparel for climbing, mountaineering, hiking and skiing. Some companies also offer connected fitness products and subscriptions for multiple household users. Industry players primarily live from macroeconomic growth, which drives consumer demand for products. In fact, demand, which is heavily dependent on business cycles, is being driven by a healthy labor market, rising wages and growing disposable income.

3 trends shaping the future of the leisure and recreation products industry

US Economy Slowdown Concerns: A slowdown in the economy is likely to hurt the industry. Worries about a global slowdown and a possible recession are spreading in the stock market. Market experts fear that the Federal Reserve’s tight stance on taming inflation could push the economy into recession. High inflation continues to hurt the industry. Despite moderating somewhat from a 40-year high, inflation in the United States is proving to be much more stubborn than expected. The latest Consumer Price Index (CPI) figure for August read 8.3% – high enough for the Fed to raise its core interest rate by another 0.75% and bring the year-to-date increase to 3%. Inflationary cost increases in labor, compensation, healthcare, freight, and rent result in higher spending.

Decline in new boat sales: Sales of new boats slipped below pre-pandemic levels through July. According to reports from the National Marine Manufacturers Association (NMMA), new powerboat sales in the first seven months of 2022 totaled 187,000 units, down 18% from the same period in 2021. The decline is primarily due to uncertain economic conditions and supply chain turmoil. Sales of new pontoons fell 13% in the first seven months of 2022, while sales of new wake pleasure boats fell 11%. Despite recent concerns, 2022 looks set to be a healthy year for the boating industry, according to the NMMA.

Booming golf business: The golf industry has performed exceptionally well amid the pandemic. Golf is benefiting from an increasing participation of young people. Technology has also played a crucial role in transforming the sport. Meanwhile, India and China have emerged as two of the largest emerging golf markets. According to Golf Datatech and its 2020 National Golf Performance Report, rounds increased 13.9% in 2020 while equipment sales increased 10.1% in 2020. The upward trend continued in 2021, with rounds played increasing by 5.5%. Comparing 2021 to 2019 (pre-pandemic), rounds played increased by almost 18%. This suggests that the industry has performed exceptionally well over the past two years.

Zacks’ industry ranking suggests a bleak outlook

The Zacks Leisure and Recreation products industry is grouped within the broader Consumer Discretionary sector.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates near-term prospects.

The Leisure and Recreation Products industry currently has a Zacks Industry Rank #213, placing it in the bottom 15% of more than 251 Zacks Industries. Our research shows that the top 50% of industries evaluated by Zacks outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of industries ranked by Zacks is a result of negative earnings prospects for each company as a whole. Looking at the revisions to aggregate earnings estimates, it appears that analysts are beginning to lose confidence in this group’s earnings growth potential. Since March 31, 2022, industry earnings estimates for 2022 are down 18.6%.

Before we review some industry stocks that you might want to consider, let’s take a look at recent stock market performance and the industry’s valuation picture

Sector Undercut the S&P 500

The Zacks Leisure and Recreation Products industry has underperformed the Zacks S&P 500 Composite and its sector over the past year. Stocks in this industry are down 52% overall over the past year, compared to the S&P 500’s 20.2% decline. The Zacks consumer discretionary sector is down 45.8% over the same period.

One year value for money

valuation

Based on the forward 12-month price-to-earnings multiple, which is a commonly used multiple to value recreational products stocks, the industry is trading at 14.67X, compared to the S&P 500’s 15.48X and the 16.41X sector. Over the past five years, the industry has traded as high as 44.8x and as low as 12.36x, with the median at 16.72x, the charts show.

Forward price-to-earnings ratio versus S&P

3 Leisure and Recreation Product Stocks to Watch

Vista Outdoor.: Based in Anoka, MN, this company designs, manufactures and markets multiple consumer products for the outdoor sports and recreation markets in the United States and internationally. This Zacks company ranked #2 (Buy) is benefiting from an increase in outdoor activities and participation in shooting sports.

The company’s shares are down 39.2% over the past year. The Zacks Consensus estimate for earnings in 2023 has remained steady for the past seven days.

Price & Consensus: VSTO

Academy Sport and Outdoor: Based in Katy, TX, the Company, through its subsidiaries, operates as a retailer of sporting goods and outdoor recreation products in the United States. It is benefiting from robust consumer demand across all markets and categories of goods, particularly in sports and leisure. A rising demand for indoor and outdoor games, bicycles, fitness equipment and outdoor cooking bodes well. Partnerships with key national brands such as Nike, Adidas, Under Armour, Columbia and The North Face are encouraging.

Over the past year, shares of this Zacks Rank #3 (hold) company are up 9.4%. The Zacks consensus estimate for 2023 has been revised up 0.6% over the past 30 days. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks can be found here.

Price & Consensus: ASO

Acushnet Holdings: Based in Fairhaven, MA, this company designs, develops, manufactures and sells golf products in the United States, Europe, the Middle East, Africa, Japan, Korea and internationally. This Zacks-ranked #3 company is likely to benefit from an increasing demand for golf balls. The company benefits from a healthy backlog, strong immediate demand, lean channel inventories and gradually increasing production levels.

The Zacks Consensus estimate for earnings for the current quarter has been revised up a cent over the past 70 days to $2.80. The stock is down 6% over the past year.

Price & Consensus: GOLF