Macroeconomic challenges of high inflation and aggressive interest rates since last year have affected how people spend their money—spending on entertainment suffered due to these factors. However, with inflation declining from last year’s peak, spending on recreational and entertainment activities has been recovering.
Amid this backdrop, buying fundamentally strong entertainment stock Endeavor Group Holdings, Inc. (EDR) could be wise. On the other hand, it could be wise to add Live Nation Entertainment, Inc. (LYV) and Emerald Holding, Inc. (EEX) to one’s watchlist.
According to the Bureau of Labor Statistics, Americans pay an average of $243 monthly for entertainment, translating to $2,900 annually. Despite the macroeconomic challenges, the demand for entertainment remains resilient thanks to the pent-up demand for recreational activities, amusement parks, etc., and a strong labor market.
The global amusement and theme parks market is expected to reach $82.40 billion by 2030, growing at a CAGR of 5.2%.
However, Fed officials forecasted two more rate hikes by the end of this year, signaling that the benchmark interest rate could climb to as high as 5.6%. This could push the economy towards a recession, and consumer discretionary spending could take a hit, impacting the entertainment industry.
Let's take a closer look at the fundamentals of the featured stocks.
Stock to Buy:
Endeavor Group Holdings, Inc. (EDR)
EDR operates as an entertainment, sports, and content company. It operates in three segments: Owned Sports Properties, Events, Experiences & Rights, and Representation.
On April 3, 2023, EDR and World Wrestling Entertainment, Inc. (WWE) announced that they had agreed to form a new, publicly listed company combining UFC and WWE. Endeavor will have a 51% controlling interest while existing WWE shareholders will have a 49% interest. Together, UFC and WWE will become a live sports and entertainment behemoth.
The new company will be able to maximize the value of combined media rights, enhance sponsorship monetization, develop new forms of content, pursue other strategic mergers and acquisitions, and deliver shareholder value.
In terms of the trailing-12-month gross profit margin, EDR’s 61.13% is 23.3% higher than the 49.59% industry average. Likewise, its 11.60% trailing-12-month levered FCF margin is 59.2% higher than the 7.28% industry average. Furthermore, the stock’s 10.63% trailing-12-month EBIT margin is 24.8% higher than the 8.52% industry average.
EDR’s revenues for the first quarter ended March 31, 2023, increased 8.4% year-over-year to $1.60 billion. Its net income attributable to EDR came in at $8.03 million. The company’s adjusted income came in at $306.39 million. In addition, its operating income came in at $136.59 million. Also, its EPS of class A common stock came in at $0.03.
For the quarter ending June 30, 2023, EDR’s EPS and revenue are expected to increase 12.4% and 9.3% year-over-year to $0.33 and $1.43 billion, respectively. Over the past nine months, the stock has gained 12.8% to close the last trading session at $22.23.
EDR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a 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 Growth and Momentum. Within the Entertainment - Sports & Theme Parks industry, it is ranked first out of 14 stocks. To see EDR’s rating for Value, Stability, Sentiment, and Quality, click here.
Stocks to Watch:
Live Nation Entertainment, Inc. (LYV)
LYV operates as a live entertainment company. It operates through Concerts, Ticketing, and Sponsorship & Advertising segments.
In terms of the trailing-12-month levered FCF margin, LYV’s 7.62% is 4.7% higher than the 7.28% industry average. Likewise, its 6.33% trailing-12-month Return on Total Capital is 68.3% higher than the 3.76% industry average. Furthermore, the stock’s 1.03x trailing-12-month asset turnover ratio is 109.4% higher than the 0.49x industry average.
For the first quarter ended March 31, 2023, LYV’s total revenues rose 73.5% year-over-year to $3.13 billion. Its adjusted free flow rose 113.2% year-over-year to $190 million. The company’s adjusted operating income rose 53% year-over-year to $319.70 million.
Its net loss attributable to common stockholders of LYV narrowed 93.7% year-over-year to $3.17 million. Also, its loss per share available to common stockholders of LYV narrowed 35.9% year-over-year to $0.25.
Street expects LYV’s EPS for the quarter ending June 30, 2023, to decline 4.5% year-over-year to $0.63. On the other hand, its revenue for the same quarter is expected to increase 11.7% year-over-year to $4.95 billion. It surpassed the Street EPS estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 34.3% to close the last trading session at $87.76.
LYV’s POWR Ratings are consistent with this uncertain outlook. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. It has a B grade for Momentum.
It is ranked #2 in the same industry. Click here to see LYV’s ratings for Growth, Value, Stability, Sentiment, and Quality.
Emerald Holding, Inc. (EEX)
EEX operates business-to-business (B2B) trade shows in the United States. It operates in two segments, Commerce; and Design, Creative, and Technology.
On January 10, 2023, EEX acquired Lodestone Events, the producers of the popular Overland Expo series. EEX’s President and CEO Hervé Sedky said, “Formally entering the B2C event space is paramount to Emerald’s corporate strategy of expanding into new and high-growth markets to accelerate top-line growth and unlock significant value for shareholders.”
In terms of the trailing-12-month net income margin, EEX’s 34.83% is significantly higher than the 2.65% industry average. Likewise, its 64.46% trailing-12-month gross profit margin is 30% higher than the 49.59% industry average. Furthermore, the stock’s 11.07% trailing-12-month Return on Total Assets is 673.3% higher than the 1.43% industry average.
For the fiscal first quarter ended March 31, 2023, EEX’s total revenues rose 24.2% year-over-year to $122.30 million. The company’s net income declined 55.9% year-over-year to $7.10 million. Its adjusted EBITDA declined 26% year-over-year to $36.50 million. In addition, its loss per share came in at $0.04, compared to an EPS of $0.04.
Analysts expect EEX’s revenues for the quarter ending September 30, 2023, to increase 27.2% year-over-year to $79.40 million. Its EPS for the quarter ending June 30, 2023, is expected to be negative. Over the past month, the stock has gained 17.9% to close the last trading session at $3.95.
EEX’s uncertain outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. It has a B for Sentiment.
It is ranked #3 in the Entertainment - Sports & Theme Parks industry. To see EEX’s ratings for Growth, Value, Momentum, Stability, and Quality, click here.
Is the Bear Market Over?
Investment pro Steve Reitmeister sees signs of the bear market’s return. That is why he has constructed a unique portfolio to not just survive that downturn...but even thrive!
Steve Reitmeister’s Trading Plan & Top Picks >
Macroeconomic challenges of high inflation and aggressive interest rates since last year have affected how people spend their money—spending on entertainment suffered due to these factors. However, with inflation declining from last year’s peak, spending on recreational and entertainment activities has been recovering.
Amid this backdrop, buying fundamentally strong entertainment stock Endeavor Group Holdings, Inc. (EDR) could be wise. On the other hand, it could be wise to add Live Nation Entertainment, Inc. (LYV) and Emerald Holding, Inc. (EEX) to one’s watchlist.
According to the Bureau of Labor Statistics, Americans pay an average of $243 monthly for entertainment, translating to $2,900 annually. Despite the macroeconomic challenges, the demand for entertainment remains resilient thanks to the pent-up demand for recreational activities, amusement parks, etc., and a strong labor market.
The global amusement and theme parks market is expected to reach $82.40 billion by 2030, growing at a CAGR of 5.2%.
However, Fed officials forecasted two more rate hikes by the end of this year, signaling that the benchmark interest rate could climb to as high as 5.6%. This could push the economy towards a recession, and consumer discretionary spending could take a hit, impacting the entertainment industry.
Let's take a closer look at the fundamentals of the featured stocks.
Stock to Buy:
Endeavor Group Holdings, Inc. (EDR)
EDR operates as an entertainment, sports, and content company. It operates in three segments: Owned Sports Properties, Events, Experiences & Rights, and Representation.
On April 3, 2023, EDR and World Wrestling Entertainment, Inc. (WWE) announced that they had agreed to form a new, publicly listed company combining UFC and WWE. Endeavor will have a 51% controlling interest while existing WWE shareholders will have a 49% interest. Together, UFC and WWE will become a live sports and entertainment behemoth.
The new company will be able to maximize the value of combined media rights, enhance sponsorship monetization, develop new forms of content, pursue other strategic mergers and acquisitions, and deliver shareholder value.
In terms of the trailing-12-month gross profit margin, EDR’s 61.13% is 23.3% higher than the 49.59% industry average. Likewise, its 11.60% trailing-12-month levered FCF margin is 59.2% higher than the 7.28% industry average. Furthermore, the stock’s 10.63% trailing-12-month EBIT margin is 24.8% higher than the 8.52% industry average.
EDR’s revenues for the first quarter ended March 31, 2023, increased 8.4% year-over-year to $1.60 billion. Its net income attributable to EDR came in at $8.03 million. The company’s adjusted income came in at $306.39 million. In addition, its operating income came in at $136.59 million. Also, its EPS of class A common stock came in at $0.03.
For the quarter ending June 30, 2023, EDR’s EPS and revenue are expected to increase 12.4% and 9.3% year-over-year to $0.33 and $1.43 billion, respectively. Over the past nine months, the stock has gained 12.8% to close the last trading session at $22.23.
EDR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a 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 Growth and Momentum. Within the Entertainment - Sports & Theme Parks industry, it is ranked first out of 14 stocks. To see EDR’s rating for Value, Stability, Sentiment, and Quality, click here.
Stocks to Watch:
Live Nation Entertainment, Inc. (LYV)
LYV operates as a live entertainment company. It operates through Concerts, Ticketing, and Sponsorship & Advertising segments.
In terms of the trailing-12-month levered FCF margin, LYV’s 7.62% is 4.7% higher than the 7.28% industry average. Likewise, its 6.33% trailing-12-month Return on Total Capital is 68.3% higher than the 3.76% industry average. Furthermore, the stock’s 1.03x trailing-12-month asset turnover ratio is 109.4% higher than the 0.49x industry average.
For the first quarter ended March 31, 2023, LYV’s total revenues rose 73.5% year-over-year to $3.13 billion. Its adjusted free flow rose 113.2% year-over-year to $190 million. The company’s adjusted operating income rose 53% year-over-year to $319.70 million.
Its net loss attributable to common stockholders of LYV narrowed 93.7% year-over-year to $3.17 million. Also, its loss per share available to common stockholders of LYV narrowed 35.9% year-over-year to $0.25.
Street expects LYV’s EPS for the quarter ending June 30, 2023, to decline 4.5% year-over-year to $0.63. On the other hand, its revenue for the same quarter is expected to increase 11.7% year-over-year to $4.95 billion. It surpassed the Street EPS estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 34.3% to close the last trading session at $87.76.
LYV’s POWR Ratings are consistent with this uncertain outlook. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. It has a B grade for Momentum.
It is ranked #2 in the same industry. Click here to see LYV’s ratings for Growth, Value, Stability, Sentiment, and Quality.
Emerald Holding, Inc. (EEX)
EEX operates business-to-business (B2B) trade shows in the United States. It operates in two segments, Commerce; and Design, Creative, and Technology.
On January 10, 2023, EEX acquired Lodestone Events, the producers of the popular Overland Expo series. EEX’s President and CEO Hervé Sedky said, “Formally entering the B2C event space is paramount to Emerald’s corporate strategy of expanding into new and high-growth markets to accelerate top-line growth and unlock significant value for shareholders.”
In terms of the trailing-12-month net income margin, EEX’s 34.83% is significantly higher than the 2.65% industry average. Likewise, its 64.46% trailing-12-month gross profit margin is 30% higher than the 49.59% industry average. Furthermore, the stock’s 11.07% trailing-12-month Return on Total Assets is 673.3% higher than the 1.43% industry average.
For the fiscal first quarter ended March 31, 2023, EEX’s total revenues rose 24.2% year-over-year to $122.30 million. The company’s net income declined 55.9% year-over-year to $7.10 million. Its adjusted EBITDA declined 26% year-over-year to $36.50 million. In addition, its loss per share came in at $0.04, compared to an EPS of $0.04.
Analysts expect EEX’s revenues for the quarter ending September 30, 2023, to increase 27.2% year-over-year to $79.40 million. Its EPS for the quarter ending June 30, 2023, is expected to be negative. Over the past month, the stock has gained 17.9% to close the last trading session at $3.95.
EEX’s uncertain outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. It has a B for Sentiment.
It is ranked #3 in the Entertainment - Sports & Theme Parks industry. To see EEX’s ratings for Growth, Value, Momentum, Stability, and Quality, click here.
Is the Bear Market Over?
Investment pro Steve Reitmeister sees signs of the bear market’s return. That is why he has constructed a unique portfolio to not just survive that downturn...but even thrive!
Steve Reitmeister’s Trading Plan & Top Picks >
LYV shares were trading at $87.29 per share on Monday afternoon, down $0.47 (-0.54%). Year-to-date, LYV has gained 25.16%, versus a 13.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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