Heightened recessionary fears amid macroeconomic headwinds and regional banking fears are meddling with consumers’ discretionary spending. However, the entertainment industry has improved significantly from its pandemic lows and is anticipated to remain buoyed in the foreseeable future.
Given this backdrop, premier stocks on top of the entertainment industry, such as Endeavor Group Holdings, Inc. (EDR), Cedar Fair, L.P. (FUN), and Emerald Holding, Inc. (EEX), might be wise portfolio additions now for the reasons mentioned throughout the article.
Sticky inflation and fears of an economic slowdown have affected consumers’ discretionary spending, with consumers more inclined to spend on essentials. However, the entertainment industry, which evolved dramatically over the years, is anticipated to witness growth on the backs of resilient consumer demand.
For instance, the new digital tools and technologies would bring creativity, flexibility, and cost-effective options to suit consumer requirements. As per Deloitte, virtual production tools will grow by 20% in 2023 to $2.20 billion from $1.80 billion in 2022.
Furthermore, as per Statista, total revenue in the entertainment segment worldwide is projected to grow at a CAGR of 6.7% between 2022 and 2027, resulting in a market volume of $42.54 billion by 2027. Also, the global market for amusement and theme parks is projected to reach a revised size of $82.40 billion by 2030, growing at a CAGR of 5.2% between 2022 and 2030.
Against this backdrop, quality entertainment stocks EDR, FUN, and EEX might be solid buys now to capitalize on industrial tailwinds.
Endeavor Group Holdings, Inc. (EDR)
EDR operates as an entertainment, sports, and content company in the United States, the United Kingdom, and internationally. It works in three segments: Owned Sports Properties; Events; Experiences & Rights; and Representation.
Recently, EDR and World Wrestling Entertainment, Inc. (WWE) announced signing a definitive agreement to form a new, publicly listed company consisting of two iconic, complementary, global sports and entertainment brands: UFC and WWE. Upon close, Endeavor will hold a 51% controlling interest in the new company, and existing WWE shareholders will hold a 49% interest in the new company.
Together, these companies are expected to have global reach, impressive scale, and omnichannel distribution.
EDR’s trailing-12-month levered FCF margin of 13.30% is 76.4% higher than the industry average of 7.54%. Also, its trailing-12-month ROCE and ROTC of 8.61% and 4.40% are 190.8% and 24.4% higher than the 2.96% and 3.54% industry averages, respectively.
EDR’s revenue came in at $1.26 billion for the fiscal fourth quarter that ended December 31, 2022. Its total operating expenses declined 19.7% year-over-year to $1.17 billion. Its adjusted EBITDA came in at $239.64 million, up 4.4% year-over-year.
For the year that ended December 31, 2022, net income attributable to EDR and earnings per share of class A common stock came in at $129.13 million and $0.45, compared to net loss and loss per share of $296.63 million and $1.14 in the prior year, respectively.
Analysts expect EDR’s revenue to increase 9.5% year-over-year to $1.44 billion for the fiscal second quarter ending June 2023. Its EPS is estimated to increase 38.1% year-over-year to $0.40 during the same quarter. It surpassed the EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 11.3% to close the last trading session at $22.52. Moreover, it has gained 6.2% over the past three months.
EDR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
EDR has a B grade for Sentiment. Within the Entertainment – Sports & Theme Parks industry, it is ranked #3 out of 17 stocks.
Click here for the additional POWR Ratings for Growth, Value, Momentum, Stability, and Quality for EDR.
Cedar Fair, L.P. (FUN)
FUN owns and operates amusement, water parks, and complementary resort facilities in the United States and Canada. Also, it owns and operates the Castaway Bay Indoor Waterpark Resort, Hotel Breakers, Cedar Point's Express Hotel, and Sawmill Creek Resort.
In 2022, FUN sold a record 3.2 million season passes and generated more than $450 million in revenues from its suite of season-pass products, including all-season dining and all-season beverage.
On February 16, FUN’s board of directors declared a cash distribution of $0.30 per limited partner unit paid to the shareholders on March 21, 2023. This reflects its cash generation abilities.
FUN’s trailing-12-month levered FCF margin of 11.51% is 501.5% higher than the industry average of 1.91%. Also, its trailing-12-month net income margin and EBIT margin of 16.93% and 20.63% are 271.5% and 165.4% higher than the 4.56% and 7.77% industry averages, respectively.
FUN’s net revenues came in at $365.99 million, up 4.3% year-over-year for the fiscal fourth quarter that ended December 31, 2022. Its total cost and expenses declined 1.6% year-over-year to $316.56 million. Also, its adjusted EBITDA came in at $87.83 million, up 20% year-over-year for the same quarter.
For the year ended December 31, 2022, total comprehensive income and net income per limited partner unit came in at $314.33 million and $5.45, compared to total comprehensive loss and loss per limited partner unit of $42.17 million and $0.86, respectively.
Analysts expect FUN’s revenue to increase 5.8% year-over-year to $539.43 million for the fiscal second quarter ending June 2023. Its EPS is estimated to increase 33.8% year-over-year to $1.19 during the same quarter. It surpassed the EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 12.2% to close the last trading session at $45.67. Moreover, it has gained 10.5% over the past three months.
It is no surprise FUN has an overall B rating, which indicates Buy in our proprietary rating system.
FUN has a B grade for Value and Quality. Within the same industry, it is ranked first.
To see the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for FUN, click here.
Emerald Holding, Inc. (EEX)
EEX operates business-to-business (B2B) trade shows in the United States in two segments that are Commerce; and Design, Creative, and Technology. Moreover, it also operates content and content-marketing websites and related digital products, produce publications, the Elastic Suite platform, and the Flex platform.
EEX’s board of directors approved an extension and expansion of the company’s share repurchase program that allows for the repurchase of $20 million of EEX’s common stock through December 31, 2023. The company bought back 2.9 million shares of common stock at an average price of $3.60 per share during 2022.
EEX’s trailing-12-month levered FCF margin of 10.69% is 41.8% higher than the industry average of 7.54%. Also, its trailing-12-month net income margin and ROTA of 40.14% and 11.91% are significantly higher than the 3.38% and 1.64% industry averages, respectively.
EEX’s revenues came in at $93.6 million, up 127.7% year-over-year for the fiscal fourth quarter that ended December 31, 2022. Its adjusted EBITDA came in at $25 million for the same quarter.
For the quarter that ended December 31, 2022, net and comprehensive income attributable to EEX common stockholders came in at $4.1 million or $0.06 income per share compared to a net loss and comprehensive loss of $18.20 million or $0.26 loss per share for the quarter that ended December 31, 2021.
The stock gained 5.7% intraday to close the last trading session at $3.93. Moreover, it has gained 16.3% over the past six months.
EEX’s promising prospects are reflected in its POWR Ratings. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
EEX has a B grade for Quality. Within the same industry, it is ranked second.
Beyond what has been stated above, we have also given additional ratings for Growth, Value, Momentum, Stability, and Sentiment. Get all EEX ratings here.
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EDR shares rose $0.31 (+1.38%) in premarket trading Tuesday. Year-to-date, EDR has gained 3.06%, versus a 8.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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