After snapping a three-week losing streak last week, the market is grappling with the inflation data released today. The Consumer Price Index (CPI) in August reflected an 8.3% increase year-over-year and 0.1% over the prior month. Economists expected the headline inflation to fall by 0.1%.
Prices were driven higher by increases in food, shelter, and medical care services, offsetting a sharp decline in gasoline prices.
To combat the surging inflation, the Federal Reserve has raised interest rates four times this year and is expected to deliver a third straight 75-basis point hike next week. The Federal Reserve has reiterated that it will continue to raise interest rates until it achieves its long-term inflation target of 2%. Therefore, the market is expected to remain under pressure.
However, since U.S. personal spending on recreation services is expected to grow at a CAGR of 9.9% through 2026, it could be wise to invest in fundamentally strong leisure stocks Playa Hotels & Resorts N.V. (PLYA) and Accel Entertainment, Inc. (ACEL).
Playa Hotels & Resorts N.V. (PLYA)
PLYA owns, develops, and operates all-inclusive resorts in Mexico and the Caribbean beachfront locations. The company runs a portfolio of 22 resorts with 8,366 rooms in Mexico, Jamaica, and the Dominican Republic. It also offers and organizes weddings, lodging, dining, entertainment, meetings, events, and other hospitality services in its hotels.
On August 2, 2022, PLYA agreed to manage the renowned Seadust Cancun Family Resort in Mexico. This collaboration accentuates PLYA’s position as a top player in hospitality management.
PLYA’s total net revenue came in at $214.09 million for the second quarter ended June 30, 2022, up 72.1% year-over-year. Its adjusted EBITDA increased 169.3% year-over-year to $61.70 million. Moreover, the company’s adjusted net income came in at $24.87 million, compared to an adjusted net loss of $9.56 million in the year-ago period. Also, its adjusted EPS stood at $0.15, compared to an adjusted loss per share of $0.06 in the year-ago period.
Analysts expect PLYA’s EPS for fiscal 2023 to increase 31.2% year-over-year to $0.66. Its revenue for the third quarter ending September 30, 2022, is expected to increase 30% year-over-year to $196.71 million. Over the past month, the stock has declined 9.1% to close the last trading session at $6.67.
PLYA’s strong fundamentals are reflected in its POWR Ratings. According to our proprietary rating system, it has an overall A rating, translating to a Strong Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and a B for Growth, Value, and Quality. It is ranked #2 out of 21 stocks in the B-rated Travel - Hotels/Resorts industry. Click here to see the additional ratings of PLYA for Momentum and Stability.
Accel Entertainment, Inc. (ACEL)
ACEL is a leading distributed gaming operator in the United States. It is involved in the installation, maintenance, and operation of gaming terminals; redemption devices that disburse winnings and contain automated teller machine (ATM) functionality; and other amusement devices in authorized non-casino locations, such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops, and grocery stores.
On June 1, 2022, ACEL acquired Century Gaming, Inc., one of the leading distributed gaming operators in the Western United States. With this acquisition, the company is expected to expand its portfolio and business model into new markets.
In the fiscal second quarter (ended June 30, 2022), ACEL’s net revenues increased 13% year-over-year to $227.87 million. Its operating income grew 9.6% year-over-year to $27.32 million, while its net income increased 80.5% from the year-ago value to $22.46 million. Also, its EPS came in at $0.24, up 84.6% year-over-year.
Analysts expect ACEL’s EPS and revenue to increase 35% and 39.6% year-over-year to $0.25 and $269.87 million, respectively, in the fiscal third quarter (ending September 2022).
ACEL has lost 8.1% over the past month to close the last trading session at $9.60.
ACEL’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which equates to a Buy in our POWR Ratings system. ACEL also has a B grade for Growth, Value, and Quality. The stock is ranked #2 of 28 in the Entertainment - Casinos/Gambling industry.
Click here to see the ratings of ACEL for Momentum, Stability, and Sentiment.
PLYA shares were trading at $6.46 per share on Tuesday afternoon, down $0.21 (-3.15%). Year-to-date, PLYA has declined -19.05%, versus a -15.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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