Despite the banking crisis, consumer spending remained resilient in March. The upbeat consumer and business sentiment further suggests that the economy is on the upswing. Hence, it could be wise to invest in sound leisure stocks Endeavor Group Holdings, Inc. (EDR) and Cedar Fair, L.P. (FUN). Let's discuss why.
In March, consumer spending held steady despite the banking crisis. The PCE Index rose about 0.1% to $8.20 billion, while personal income saw a 0.3% increase to $67.90 billion. Additionally, Disposable Personal Income (DPI) increased by 0.4% to $71.70 billion, as per the latest estimates from the Bureau of Economic Analysis.
Consumer sentiment also inched up in April. The University of Michigan reported a preliminary reading of 63.5 for the overall index of consumer sentiment, up from 62.0 the previous month. This exceeded economists' forecast of 62.0 from a Reuters poll.
Furthermore, amid stronger services and manufacturing, business activity increased in April to nearly a 12-month high. The S&P Global’s flash April composite purchasing managers index rose 1.2 points to 53.5, outperforming forecasts from analysts surveyed by Bloomberg.
Moreover, investors’ interest in leisure stocks is evident from the Invesco Dynamic Leisure and Entertainment ETF’S (PEJ) 10.8% returns over the past six months.
As leisure product stocks exhibit a strong correlation with consumer spending, it could be wise to invest in fundamentally sound leisure stocks, EDR and FUN, this summer.
Let's explore in detail the reasons why these stocks make worthwhile investments.
Endeavor Group Holdings, Inc. (EDR)
EDR is a global sports and entertainment company. It owns and operates premium sports properties, including the Ultimate Fighting Championship (UFC). It also produces and distributes sports and entertainment content. The company operates through three segments, Owned Sports Properties; Events, Experiences & Rights; and Representation.
On April 3, EDR and World Wrestling Entertainment, Inc. (WWE) announced that they had signed a definitive agreement to form a new publicly listed company, with EDR holding 51% and existing WWE shareholders holding 49%.
The alliance is anticipated to result in a $21+ billion sports and entertainment powerhouse with a sizable fan base and expansion potential in media rights, sponsorships, and content production. Such collaborations should greatly benefit EDR.
EDR’s revenue increased 3.8% year-over-year to $5.27 billion for the year ended December 31, 2022. Its operating income stood at $577.03 million compared to a loss of $22.24 million in the previous year. Also, its adjusted EBITDA grew 32.2% from the year-ago value to $1.16 billion.
In addition, net income attributable to EDR and its EPS stood at $129.13 million and $0.45, compared to a net loss and loss per share of $296.63 million and $1.14, respectively.
The consensus revenue estimate of $5.91 billion for the fiscal year (ending December 2023) reflects a 12.1% year-over-year improvement. Likewise, the consensus EPS estimate of $1.42 for the current year indicates a 35% rise year-over-year. Moreover, the company surpassed its consensus EPS estimates in three of four trailing quarters, which is impressive.
The stock has gained 20% over the past six months to close the last trading session at $25.05.
MUSA’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
EDR has an A grade for Sentiment. It has ranked #3 in the 14-stock Entertainment - Sports & Theme Parks industry.
In addition to the POWR Ratings I’ve just highlighted, you can see EDR’s ratings for Value, Stability, Growth, Quality, and Momentum here.
Cedar Fair, L.P. (FUN)
FUN is a regional operator of approximately 13 amusement parks, water parks, and complimentary resort facilities. Their parks are family-oriented and offer recreational facilities suitable for all ages, with clean and attractive environments featuring rides and immersive entertainment.
On February 7, FUN announced the first phase of its Cedar Point Esports development plan, which would feature a 1,000-square-foot area with state-of-the-art gaming facilities, live streaming capabilities, and multimedia video displays. The space would house 32 gaming stations, scalable to larger events.
Such expansion initiatives could attract a new audience and generate additional revenue through event tickets, sponsorships, and advertising for the company.
FUN’s net revenues increased 4.3% year-over-year to $365.99 million for the fiscal fourth quarter that ended December 31, 2022. Its operating income rose 70.1% from the year-ago value to $49.44 million. Moreover, its adjusted EBITDA rose 20% from the prior year’s period to $87.83 million.
Furthermore, its net income stood at $12.36 million, compared to a net loss of $27.22 million in the previous year’s period.
Analysts expect FUN’s revenue to increase 2.6% year-over-year to $1.93 billion for the fiscal year ending December 2024. The company’s EPS for the same year is expected to grow 6% from the previous year to $3.68. Shares of FUN have gained 4.2% over the past six months to close the last trading session at $41.64.
FUN’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
FUN has a B grade for Value and Quality. The stock has topped the 14-stock Entertainment - Sports & Theme Parks industry.
Click here to access additional FUN ratings for Growth, Stability, Sentiment, and Momentum.
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EDR shares were trading at $25.63 per share on Wednesday morning, up $0.58 (+2.32%). Year-to-date, EDR has gained 13.71%, versus a 7.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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