The leisure industry is essential for offering individuals relaxation, entertainment, and recreation opportunities. It is primarily driven by consumer spending and disposable income. Consequently, the industry's growth is closely tied to economic conditions, with changes in consumer confidence and discretionary spending significantly affecting its performance.
Given this backdrop, with rising demand for leisure activities, it could be wise to invest in fundamentally sound stocks, Brunswick Corporation (BC) and Johnson Outdoors Inc. (JOUT). However, owing to inflation and recessionary headwinds, the fundamentally weak stock Latham Group, Inc. (SWIM) might be avoided.
The sports and outdoor market is anticipated to achieve a revenue milestone of $84.02 billion by 2023. Moreover, exhibiting a steady annual growth rate of 9.5%, the market is projected to reach $120.70 billion by 2027.
On top of it, the U.S. sporting goods stores had sales amounting to an estimated $5.3 billion in March, which was an increase of over a billion dollars compared to the previous month.
Furthermore, in 2022, the size of the global leisure travel market reached $804.40 billion. Majorly driven by a shift in spending patterns, the market is expected to expand even further, reaching a staggering $1.33 trillion by 2028, exhibiting a CAGR of 8.8% from 2022 to 2028.
The combined statistics mentioned above create a favorable outlook and substantial opportunities for the global leisure market in the foreseeable future.
However, the sector may face challenges with Americans feeling the pinch from persistent inflation and the Fed’s efforts to tame price rises, which could leave consumers cautious about spending on leisure activities. With that being said, let us consider the fundamentals of the featured stock.
Stocks to Buy:
Brunswick Corporation (BC)
BC is engaged in designing, manufacturing, and marketing recreation products worldwide. It operates through three segments: Propulsion; Parts & Accessories; and Boat. It offers products such as outboard, sterndrive, and inboard engines for independent boat builders, electrical products, boat parts and systems, engine oils, and lubricants.
On May 18, Mercury Marine, a division of BC, formed a partnership with JJE, a prominent provider of electrified propulsion solutions for the automotive industry worldwide. This collaboration aligns with Mercury's objective of being at the forefront of both internal combustion propulsion and electrification in the marine industry.
By working together, Mercury should be able to broaden its range of electric propulsion solutions and make advancements in higher-powered electric systems.
In the same month, the company announced a quarterly dividend on its common stock of $0.40 per share, payable to shareholders on June 15, 2023. The company’s annual dividend of $1.60 translates to a 1.99% yield on the prevailing prices, while its four-year average dividend yield is 1.59%.
Its dividend payouts have grown at CAGRs of 18.1% and 15.8% over the past three and five years, respectively.
BC’s net sales increased 2.8% year-over-year to $1.74 billion in the first quarter (ended April 1, 2023), while its adjusted operating earnings came in at $262.40 million. The company’s net earnings amounted to $112.30 million and $1.56 per share, respectively, in the same period. Also, its earnings before income taxes came in at $211.4 million for the same period.
Street expects BC’s revenue and EPS for the third quarter (ending September 2023) to increase 3.3% and 7.7% year-over-year to be $1.75 billion and $2.87, respectively. Moreover, it surpassed the EPS estimates in each of its trailing four quarters, which is impressive.
The stock has gained 7.8% over the past year to close the last trading session at $77.54.
BC’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value and Quality. In the 37-stock Athletics & Recreation industry, it is ranked #3. To see additional POWR Ratings of BC for Growth, Momentum, Stability, and Sentiment, click here.
Johnson Outdoors Inc. (JOUT)
JOUT designs, manufactures, and markets seasonal and outdoor recreational products for fishing worldwide. It operates through four segments: Fishing; Camping; Watercraft Recreation; and Diving. It offers products such as electric motors for trolling, marine battery chargers, military tents and accessories; camping furniture and stoves, etc.
On May 25, JOUT announced a quarterly dividend of $0.31 per Class A share and $0.28 per Class B share, payable to shareholders on July 27, 2023.
The company’s annual dividend of $1.24 translates to a 2.15% yield on the prevailing prices, while its four-year average dividend yield is 1.16%. Its dividend payouts have grown at CAGRs of 23.7% and 24.6% over the past three and five years, respectively.
In March, JOUT declared that it had entered into a definitive agreement to sell the Eureka! Military and Commercial Tents product lines of its Camping business segment to commercial, event, and military tents and structures provider Rekord Group. This sale should allow the company to focus more on its recreational camping business.
For the second quarter that ended March 31, 2023, JOUT’s net sales increased 6.6% year-over-year to $202.12 million. Its gross profit rose 9.8% from the year-ago value to $75.34 million.
The company’s net income amounted to $14.86 million and $1.45 per share, representing increases of 50.1% and 49.5% from the prior-year quarter, respectively. Also, its profit before income taxes increased 51% from the year-ago value to $19.95 million.
The consensus EPS estimate of $1.73 for the third quarter (ending June 2023) represents a 25.4% improvement year-over-year. The consensus revenue estimate for the ongoing quarter is expected to be $201.03 million. Additionally, it surpassed the revenue estimates in each of its trailing four quarters and EPS estimates in three of its trailing four quarters, which is impressive.
Over the past six months, the stock has gained 1.8% to close the last trading session at $57.58.
JOUT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Value and Sentiment. Within the 37-stock Athletics & Recreation industry, it is ranked #4. Click here to see JOUT’s ratings for Growth, Momentum, Stability, and Quality.
Stock to Avoid:
Latham Group, Inc. (SWIM)
SWIM designs, manufactures, and markets in-ground residential swimming pools. It offers a portfolio of pools and related products, including in-ground swimming pools that include fiberglass and packaged pools; and pool covers and liners under the Latham, Narellan, CoverStar, and GLI brands.
SWIM’s net sales decreased 28.1% year-over-year to $137.72 million in the first quarter (ended April 1, 2023), while its gross profit declined 52.8% from the year-ago value to $33.37 million.
The company’s net loss widened 405.9% and 550% from the year-ago value to $14.37 million and $0.13 per share, respectively, while its loss from operations came in at $6.32 million compared to an income from operations of $6.80 million in the same period last year. Also, its adjusted EBITDA declined 76.9% from the year-ago value to $11.03 million.
Analysts expect SWIM’s revenue to decrease by 17.2% year-over-year in the second quarter (ending June 2023) to $171.24 million. Its EPS is expected to be $0.09 in the same period. Moreover, it has a grim earnings surprise history, missing the EPS estimates in each of the trailing four quarters.
SWIM’s shares have declined 64.9% over the past year to close the last trading session at $3.73.
SWIM’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which translates to Sell in our proprietary rating system.
It has a D grade for Momentum and Quality. Within the same industry, it is ranked #35. To see SWIM’s ratings for Growth, Value, Stability, and Sentiment, click here.
What To Do Next?
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BC shares were trading at $81.73 per share on Tuesday afternoon, up $4.19 (+5.40%). Year-to-date, BC has gained 14.50%, versus a 12.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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