Look To Florida For Index Of Tourism Industry Stocks' Health

Includes: CMCSA, DIS, HTZ
by: Kapitall


While the economy shrank during the Great Recession, tourism companies built up their product offerings.

The rebound in consumer spending has boosted companies that operate theme parks.

The result has been good for both the economy - like Florida's job growth - and for these stocks.

For the first time since 2011, the US economy shrank, contracting 1% during the first three months of the year. Yet, in Florida, things are definitely looking brighter.

The New York Times covered the Sunshine State and its recovering economy in an article on Tuesday. Florida, which frequently has the country's highest share of foreclosures, leads the nation in job growth this year and boasts the third-best record in job creation over the last twelve months.

The Times cited investments in tourist operations during the recession as a crucial driver of the state's nascent comeback. In June 2010, Universal Orlando - owned by Comcast (NASDAQ:CMCSA) (CMCSK) subsidiary NBCUniversal - opened the Wizarding World of Harry Potter. The theme park, which cost a reported $265 million to build, boosted attendance at Universal Orlando by 20% within six months of opening.

Orlando, which experienced a 27% increase in visitors between 2012 and 2013, isn't the only location to see an influx of tourists. Statewide, the total number of visitors reached 94.7 million last year, up 6% from 89.3 million in 2012.

The Walt Disney Company (NYSE:DIS) also poured billions into its theme parks when the economy was at a low point and has reaped significant benefits from the investments. The entertainment giant reported a record $45 billion in revenue for fiscal year 2013, with its fast-growing theme park segment, Walt Disney Parks and Resorts, seeing $14.1 billion in annual revenue, a 9% increase from a year earlier. Record attendance at Disneyland in California and Florida-based Walt Disney World, and higher ticket prices contributed to the segment's uptick in sales.

While consumers avoided unnecessary expenses during the recession, they have returned to theme parks in droves as economic conditions have improved. Market research firm IBISWorld expects revenue from US theme parks to total a record $15.4 billion this year.

With summer around the corner, we decided to look for stocks that stand to gain from consumer interest in theme parks and other tourist ventures. To begin, we constructed a group of stocks that belong to the tourism industry, including stocks from the Dow Jones US Travel & Tourism Index, lodging industry, and the resorts and casino industry. We also added theme-park-owning and resort-owning stocks from the entertainment-diversified, general entertainment, and sporting activities industries.

Next, we screened for stocks rallying above their 20-day, 50-day, and 200-day simple moving averages (SMA). This means that the stocks are performing above their moving average over a specific period of time and indicates that they have strong upward momentum.

We then screened for encouraging signs of profitability as measured by DuPont analysis. The DuPont equation uses a company's profit margin, total asset turnover, and financial leverage from the most recent quarter (MRQ) to assess its return on equity (ROE). The formula is as follows:

ROE = Net Profit Margin (Net profit/Sales)*Total Asset Turnover (Sales/Assets)*Financial Leverage (Assets/Equity)

When profitability stems from an increase in net profit margin and/or asset turnover, the firm's source of growth is viewed as positive. However, an increase in leverage ratio is considered a negative source of growth. Therefore, we looked for stocks experiencing an increase in net profit margin and/or asset turnover in the most recent quarter.

We were left with three stocks on our list. Do you think these stocks will see higher sales this year? Use this list as a starting point for your analysis, and let us know what you think in the comments.

1. Comcast Corporation (CMCSA, Kapitall snapshot): Provides entertainment, information, and communications products and services in the United States and internationally. Market cap at $134.6B, most recent closing price at $52.04.

The stock is currently rallying 1.56% above its 20-day SMA, 3.27% above its 50-day SMA, and 6.95% above its 200-day SMA.

MRQ net profit margin at 10.75% vs. 9.39% y/y. MRQ sales/assets at 0.11 vs. 0.098 y/y. MRQ assets/equity at 3.077 vs. 3.245 y/y.

Comcast owns Universal Parks & Resorts through its subsidiary NBCUniversal. Universal Parks & Resorts owns or licenses several theme parks around the world. Its current properties are Universal Studios Hollywood in Los Angeles, California; Universal Orlando Resort in Orlando, Florida; Universal Studios Japan in Osaka, Japan; and Universal Studios Singapore on the island of Sentosa, Singapore.

Three new parks are being constructed overseas: Universal Studios Beijing (expected opening 2018), Universal Studios Moscow (expected opening 2017), and Universal Studios South Korea (expected opening 2016).

2. Walt Disney Co. (DIS, Kapitall snapshot): Operates as an entertainment company worldwide. Market cap at $144.78B, most recent closing price at $84.00.

The stock is currently rallying 3.14% above its 20-day SMA, 4.65% above its 50-day SMA, and 15.68% above its 200-day SMA.

MRQ net profit margin at 16.46% vs. 14.34% y/y. MRQ sales/assets at 0.141 vs. 0.13 y/y. MRQ assets/equity at 1.84 vs. 1.933 y/y.

The Walt Disney Parks and Resorts segment manages the company's theme parks and resorts. Its current properties are Disneyland Resort in Anaheim, California; Walt Disney World Resort in Lake Buena Vista, Florida; Tokyo Disney Resort in Urayasu, Japan; Disneyland Paris in Marne-la-Vallée, France; and Hong Kong Disneyland Resort in Hong Kong, China.

Shanghai Disney Resort, the company's newest property, is expected to open at the end of 2015.

3. Hertz Global Holdings, Inc. (HTZ, Kapitall snapshot): Engages in the car and equipment rental businesses worldwide. Market cap at $13.06B, most recent closing price at $29.30

The stock is currently rallying 2.13% above its 20-day SMA, 5.74% above its 50-day SMA, and 13.50% above its 200-day SMA.

MRQ net profit margin at 3.21% vs. 2.64% y/y. MRQ sales/assets at 0.438 vs. 0.388 y/y. MRQ assets/equity at 8.873 vs. 9.357 y/y.

Hertz has a rental car center inside Universal Orlando, next to the Attraction Ticket Center. The company is also in the middle of a five-year extension to an existing partnership with Euro Disney that gives Hertz premium access to guests at Disneyland Paris hotels.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Kapitall is a team of analysts. This article was written by Mary-Lynn Cesar, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

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