The soaring inflation and the consequent aggressive interest rate hikes have led to widespread recession fears. The Atlanta Fed expects GDP to decline by 1.2% in the second quarter.
According to a CNBC CFO Council Survey, most CFOs believe a recession will occur in the first half of 2023. Given this backdrop, consumers have started thinking about pulling back on how much they spend on entertainment and travel.
Investors' declining interest in this sector is evident from the Invesco Dynamic Leisure and Entertainment ETF’s (PEJ) 21.9% slump this year.
Therefore, fundamentally weak leisure stocks Hyatt Hotels Corporation (H), Royal Caribbean Cruises Ltd. (RCL), fuboTV Inc. (FUBO), and Roblox Corporation (RBLX) are best avoided now.
Hyatt Hotels Corporation (H)
H operates as a global hospitality company. It operates through the broad segments of Owned and Leased Hotels; Americas Management and Franchising; ASPAC Management and Franchising; EAME/SW Asia Management and Franchising; and Apple Leisure Group.
In July, H announced the opening of Park Hyatt Jakarta, debuting the brand in Indonesia. The new hotel is expected to be beneficial for the company. However, there might still be some time before substantial gains can be realized from this venture.
In the first fiscal quarter that ended March 31, the net loss attributable to H was $73 million, and the net loss per share came in at $0.67. Direct and selling, general, and administrative expenses rose 112% from the prior-year quarter to $1.26 billion.
Analysts expect H’s EPS to be a negative $0.23 for the fiscal year ending December 2022. The stock has declined 20.3% over the past three months to close its last trading session at $79.40.
H’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
H is graded a D in Stability, Sentiment, and Quality. It is ranked #21 out of the 22 stocks in the Travel - Hotels/Resorts industry.
In addition to the POWR Rating grades we’ve stated above, one can see H’s Growth, Value, and Momentum ratings here.
Royal Caribbean Cruises Ltd. (RCL)
RCL is a global cruise company operating cruises under the Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises brands, which comprise a range of itineraries over several destinations.
On July 18, RCL declared it had received court approval to acquire the ultra-luxury cruise ship Endeavor. The purchase price for the vessel was $275 million and was fully financed through a 15-year unsecured term loan.
For the first fiscal quarter that ended March 31, RCL’s operating loss increased 6.2% year-over-year to $859.21 million, and its adjusted net loss increased 8% from the prior-year quarter to $1.16 billion. The company’s adjusted loss per share came in at $4.57, up 2.9% from the prior-year period.
Analysts expect RCL’s EPS to be a negative $2.29 for the second quarter (ended June 2022). The stock has declined 47.7% over the past year and 57% over the past three months to close its last trading session at $36.36.
The POWR Ratings reflect RCL’s bleak prospects. The stock has an overall F rating, equating to a Strong Sell in our POWR Ratings system.
RCL has an F grade for Stability and a D for Value, Sentiment, and Quality. It is ranked #3 of 4 stocks in the Travel - Cruises industry. The industry is rated F. Click here to see additional POWR Ratings for RCL (Growth and Momentum).
fuboTV Inc. (FUBO)
FUBO operates a live TV streaming platform for live sports, news, and entertainment content globally. The company offers the fuboTV platform that allows customers to access content through streaming devices.
In June, FUBO launched its new pick’em games, introducing the free-to-play sports contests directly integrated into the live TV streaming experience. However, gains from this venture might be stretched over a long period.
For the first fiscal quarter that ended March 31, FUBO’s total operating expenses increased 104.1% year-over-year to $377.26 million, and its net loss increased 100.6% from the prior-year quarter to $140.82 million. The company’s net loss per share attributable to common stockholders came in at $0.89, up 50.8% from the prior-year period.
The consensus EPS estimate for the second quarter (ended June 2022) of a negative $0.56 indicates a 47.1% year-over-year decrease.
The stock has declined 89.5% over the past year and 51% over the past three months to close its last trading session at $2.74.
The POWR Ratings reflect FUBO’s bleak prospects. The stock has an overall F rating, equating to a Strong Sell in our POWR Rating system.
FUBO has a Stability, Sentiment, and Quality grade of F and a Growth and Momentum grade of D. It is ranked last among 16 stocks in the Entertainment - Sports & Theme Parks industry. The industry is rated F. Click here for additional FUBO ratings for Value.
Roblox Corporation (RBLX)
RBLX is a developer and operator of an online entertainment platform. The company’s offerings include Roblox Studio, Roblox Client, Roblox Education, and Roblox Cloud.
RBLX’s losses from operations rose 12.3% from its year-ago value to $151.61 million in the first quarter ended March 31. The company’s net loss attributable to common stockholders grew 19.4% from the same period last year to $160.20 million. Adjusted EBITDA decreased 64.3% year-over-year to $67.93 million.
Street expects RBLX’s EPS to come in at a negative $0.26 for the second quarter (ended June 2022), indicating a decrease of 5% from the prior-year period. The consensus revenue estimate for the same quarter of $628.41 million suggests a decline of 5.6% from the prior-year period.
RBLX’s shares have declined 49.7% over the past year and 61.4% year-to-date to close its last trading session at $39.85.
RBLX’s POWR Ratings reflect its poor prospects. The company has an overall D rating, equating to Sell in our proprietary rating system.
RBLX has an F grade for Stability and a D in Value, Momentum, and Sentiment. It is ranked last in the 21-stock Entertainment - Toys & Video Games industry. Click here to see additional POWR Ratings for Growth and Quality for RBLX.
H shares were trading at $80.44 per share on Wednesday afternoon, up $1.04 (+1.31%). Year-to-date, H has declined -16.12%, versus a -16.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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