3 Leisure Stocks Likely to Beat Earnings - Earnings ESP

By Zacks Equity Research,

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3 Leisure Stocks Likely to Beat Earnings 

"All of us, from time to time, need a plunge into freedom and novelty, after which routine and discipline will seem delightful by contrast."- André Maurois

It is this "plunge into freedom and novelty", an occasional indulgence in diverse recreation activities and adequate disposable income that drive the leisure industry. The leisure industry comprises cruises, gaming, lodging, marinas, sports facilities and teams, travel and tourism, movie theaters and entertainment companies. As the first earnings season of 2014 unfolds, industry prospects look bright with increasing demand and significant opportunities. While there is potential for growth both domestically and internationally, the analysts expect these companies to focus on customers typically aged between 18 and 34 and effectively leverage the power of technology in 2014 and beyond.

The industry is largely driven by consumer sentiment. It is dependent on broad macroeconomic factors, with recreation largely being a discretionary activity. The Consumer Confidence Index (CCI) was under pressure in the second half of 2013 due to the government shutdown and concerns regarding consumer spending. However, consumer sentiment has started improving of late. The CCI was the highest in April since Jul 2013 owing to an improvement in the labor market after a weather-related slowdown experienced earlier in 2014.

Going forward, we expect the outlook for this industry to get better driven by an improving economic backdrop and strong industry fundamentals. Given the bright prospects, the industry now offers solid investment opportunities. Stocks with the potential to beat earnings this quarter should see faster price appreciation in the short term.

Picking the Right Stocks

With the wide array of companies in the sector muddling up the stock picking power, the Zacks methodology could offer some relief. One could narrow down the list using the positive Zacks Earnings ESP as a guide, along with a favorable Zacks Rank - Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

(For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report )

We have picked three leisure stocks, from the gaming industry, which have the right combination of elements to deliver an earnings beat this time around.

As a part of the broader leisure industry, gaming companies draw maximum attention. Las Vegas and Macau are the biggest gambling centers in the world, thanks to heavy spending by companies in these regions on infrastructure development. Meanwhile, the liberalization of gaming policies in China has allowed Macau to become the world's biggest market in terms of revenues. Moreover, its proximity to Hong Kong, mainland China, Taiwan, South Korea, Japan, and other nearby countries where gambling is popular ensures a steady inflow of visitors and gaming enthusiasts. The chosen gaming stocks are focused on the Las Vegas and Macau markets and are set to capitalize on the opportunities provided by them.

Las Vegas Sands Corp. ( LVS ) carries a Zacks Rank #2 and has an Earnings ESP of +3.26%. The Zacks Consensus Estimate for the first quarter is pegged at 92 cents per share. The company has delivered an average earnings beat of +1.74% over the last four quarters. Over the past 60 days, the Zacks Consensus Estimate (on an average) has increased 3.4%.

This international developer of multi-use integrated resorts primarily in the U.S. and Asia continues to boost its gaming portfolio in prime locations such as Las Vegas and Macau, which is helping it to gain market share. The company's upcoming projects in the Cotai Strip are expected to spur growth.

This casino operator is expected to release its earnings on Apr 24.

Wynn Resorts Ltd. ( WYNN ) carries a Zacks Rank #2 and has an Earnings ESP of +2.37%. The Zacks Consensus Estimate for the first quarter stands at $2.11 per share. This casino operator has posted an average earnings surprise of 17.76% over the past four quarters and is slated to report its first quarter 2014 earnings very soon. Over the past 60 days, the Zacks Consensus Estimate (on an average) has increased 4.5%.

Wynn Resorts is experiencing improved business in Las Vegas with the gradual recovery of the U.S. economy giving way to increased demand for leisure activities. Meanwhile we remain optimistic about Wynn Resorts' Cotai project based on the long-term growth potential of the region.

MGM Resorts International ( MGM ) carries a Zacks Rank #3 and an Earnings ESP of +20.00%. The Zacks Consensus Estimate for the first quarter is 10 cents per share. Over the past four quarters, the company has posted a significant average earnings surprise of 449.17%.

MGM Resorts is doing well domestically as well as overseas. The company's properties are well-diversified within the U.S. It is expected to witness increased occupancy and better pricing in the domestic markets, going forward. Meanwhile, it also continues to undertake initiatives to increase revenues and junket productivity in Macau. It is progressing well with its casino-hotel development project in Cotai.

MGM Resorts is expected to report its earnings on Apr 29, 2014.

Bottom Line

The outlook for the leisure industry for 2014 remains positive as it focuses on innovative and inspired ways of meeting customer expectations. However, an uncertain consumer spending environment, and volatile emerging market economies, especially tight money supply in China could decelerate the pace of growth.

Nevertheless, given the ongoing economic recovery in the U.S., fast infrastructure development in the regions where these companies operate and increasing employment opportunities in the emerging markets, these leisure stocks look like worthy investments in the near term.

LAS VEGAS SANDS (LVS): Free Stock Analysis Report

MGM RESORTS INT (MGM): Free Stock Analysis Report

WYNN RESRTS LTD (WYNN): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Earnings
Referenced Stocks: CCI , LVS , MGM , WYNN

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