The recreation industry experienced a significant decline in revenue and business operations in early 2020 due to the closure of nonessential businesses and social distancing measures. Many companies furloughed workers as a cost-cutting measure to stay afloat.
However, as social distancing norms eased post-lockdown, the companies in the industry soon regained their business momentum with strong corporate management. This is evident in Invesco Dynamic Leisure and Entertainment ETF’s (PEJ) 40.1% gain over the past six months.
As the COVID-19 vaccination deployment continues around the world, the recreation sector is expected to grow substantially this year as people are likely to engage in outdoor recreational activities after months-long social distancing regulations and remote lifestyles. We think this should benefit leisure stocks like Pool Corporation (POOL) and Brunswick Corporation (BC).
Pool Corporation (POOL)
POOL is a distributor of swimming pool supplies, equipment, and related leisure products. The Company serves primarily swimming pool remodelers and builders, specialty retailers, swimming pool repair and service businesses, irrigation construction and landscape maintenance contractors, and other commercial entities. POOL has been included in the S&P 500 Index since October last year.
POOL’s revenue has increased at a CAGR of 10.6% over the past three years, while total assets rose at a CAGR of 12.3% over the same period. This reflects the company’s strong growth potential.
The company’s net sales have increased 26.8% year-over-year to $1.14 billion in the third quarter ended September 30, 2020. Its operating income has increased 41.8% year-over-year to $148.23 million over the same period, while its EPS improved 49.2% year-over-year to $2.97.
Analysts expect POOL’s revenue to grow 20.1% year-over-year to $699.45 million in the fourth quarter ended December 31, 2020. The consensus EPS estimate of $0.76 for the current quarter indicates a 72.7% rise year-over-year. The company has an impressive earnings surprise history; it beat the Street EPS estimates in each of the trailing four quarters. POOL has gained 24.4% over the past year.
How does POOL stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
A for Industry Rank
A for Overall POWR Rating.
The stock is currently ranked #3 of 34 stocks in the Athletics & Recreation Industry.
Brunswick Corporation (BC)
BC is a designer, manufacturer, and marketer of recreation products worldwide. The company operates through two segments: Marine Engine and Boat. Its engine-related product includes trolling motors, propellers, engine control systems, and marine parts and accessories. Its boat offerings include fiberglass pleasure boats; yachts; sport boats; fishing boats; utility boats; deck boats; inflatable boats; and heavy-gauge aluminum boats.
In late October 2020, BC made a strategic investment for a second time in the early-stage technology platform, Sea Machines Robotics, Inc. to create new capabilities to enhance the boating experience. This investment will allow BC to build on emerging technology trends amid the competitive environment.
BC’s net income has increased at a CAGR of 7.1% over the past three years, while leveraged free cash flow rose at a CAGR of 61.7% over the same period. The company’s impressive track record positions it well to emerge as a leading player in the recreation industry.
BC’s revenues have increased 26.3% year-over-year to $1.23 billion in the third quarter ended September 30, 2020. Its operating earnings have increased 60.9% year-over-year to $192.60 million over the same period, while its free cash flow increased 558.2% to $520 million for the nine-month period ended September30, 2020.
Analysts expect BC’s revenue to grow 14.2% year-over-year to $1.05 billion in the fourth quarter ended December 31, 2020. The consensus EPS estimate of $1.02 for the fourth quarter indicates a 24.4% rise year-over-year. The company has an impressive earnings surprise history; it beat the Street EPS estimates in each of the trailing four quarters. The stock has gained 49.2% over the past year.
BC’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade and Industry Rank and a “B” for Peer Grade. It is currently ranked #4 of 34 stocks in the same Industry.
POOL shares were unchanged in after-hours trading Tuesday. Year-to-date, POOL has gained 3.36%, versus a 1.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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