Leisure stocks are seen at risk as recession, inflation worries build

Jul. 13, 2022 10:55 AM ETCaesars Entertainment, Inc. (CZR)BYD, BC, FUN, MTN, DS, SIX, CHDN, HAS, PATK, SEAS, MBUU, VSTO, RRR, YETI, PTON, ONEWBy: Clark Schultz, SA News Editor4 Comments

Digitally enhanced shot of a graph showing the ups and downs shares on the stock market

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KeyBanc Capital Markets hunkered down for the balance of the year with downgrades and price target revisions across the leisure sector.

Stocks dropped by analyst Brett Andress and team to a Sector Weight rating from Overweight included Caesars Interactive (NASDAQ:CZR), Hasbro (HAS), SeaWorld Entertainment (SEAS), Vista Outdoor (VSTO), and YETI Holdings (YETI).

CZR summary: "Macro; high leverage and commensurate FCF burden vs. peers."

HAS summary: "Waning conviction around MTG's LT algo via checks; saturation."

SEAS summary: "Macro; peeling off destination/Orlando exposure into 2H22/2023."

VSTO summary: "Ammo inventory/price concerns, cycle conviction into mid-terms."

YETI summary: "DTC data OK, but retailer checks show inventories building/high."

Price target revisions were also fired off on Brunswick (BC) to $85 from $100, Boyd Gaming (BYD) to $70 from $78, Churchill Downs (CHDN) to $280 from $300, Cedar Fair (FUN) to $55 from $65, Malibu Boats (MBUU) to $70 from $80, Vail Resorts (MTN) to $300 from $330, OneWater Marine (ONEW), Patrick Industries (PATK) to $65 from $90, Red Rock Resorts (RRR) to $45 from $60, and Six Flags Entertainment (SIX) to $30 from $45.

The KeyBanc revisions in the leisure sector arrived on the same day as the hot inflation print.

The stronger-than-expected numbers keep the pressure on the Federal Reserve to get inflation under control. Some traders are now expecting a 100 basis point rate increase at the central bank's July meeting. The CME FedWatch tool puts a 33.2% probability on the one full percentage point hike and a 66.8% probability on a 75-bp increase.

"With the hot month-over-month and year-over-year numbers coming in as they have, this tells the Federal Reserve it has more work to do with higher interest rates to eventually achieve its mandate of stable prices, or lower inflation, in this case. Look for another rate increase of as much as 75 basis points at the FOMC meeting at the end of this month," said Bankrate's Hamrick.

Leisure stocks that traded lower on Wednesday amid recession and high-rate worries included Drive Shack (DS) -3.7%, Peloton Interactive (PTON) -3.7%, SeaWorld Entertainment (SEAS) -2.2%, and Six Flags Entertainment (SIX) -1.6%.

See Seeking Alpha Quant Ratings across the consumer discretionary sector.

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