Outdoor and recreational activities such as camping, fishing, surfing, skiing, climbing, skateboarding, etc., have gained immense attention among Americans this year. Amid this backdrop, it could be wise to check out fundamentally strong athletic stocks Brunswick Corporation (BC), Skechers U.S.A., Inc. (SKX), and MasterCraft Boat Holdings, Inc. (MCFT), which are expected to garner substantial returns.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the athletic industry is well-positioned for growth.
According to a survey, the interest in outdoor activities among Americans is on the rise, with 97% of respondents planning to engage in outdoor sports and recreational activities. This surge in interest is expected to have a positive impact on the sporting goods and retail industry, which is projected to reach a revenue of $67.8 billion in 2023, as reported by IBISWorld.
With the growing demand for sportswear, athletic footwear, and sports and fitness equipment, the athletic market is ripe for solid growth in the coming years. Sports and outdoor market revenue is projected to reach $77.21 billion in 2023. Additionally, revenue is expected to grow at a CAGR of 9.1% between 2023 and 2027 to reach $109.40 billion by 2027.
Furthermore, with rising disposable incomes amongst people, a shift in consumer preference toward better health, and increasing investments in amusement parks, the involvement in recreational and leisure activities is anticipated to gain prominence. The recreation services market is expected to grow at a CAGR of 5.9% between 2023 and 2028.
Given the industry tailwinds, it’s time to examine the fundamentals of the top three stocks in the Athletics & Recreation industry, starting with the third in line.
Stock #3: Brunswick Corporation (BC)
BC is engaged in designing, manufacturing, and marketing recreation products, including marine propulsion products and boats, as well as parts and accessories for the marine and RV markets. It operates through three segments: Propulsion; Parts & Accessories; and Boat.
Recently, Mercury Marine, a division of BC, launched the Avator™ 20e and 35e electric outboards. The new models join Mercury’s electric propulsion lineup alongside the award-winning Avator 7.5e outboard, setting new benchmarks for innovation, performance, and connectivity. Such expansion in Avator portfolio should enable the company to strengthen its leadership in electric propulsion.
On July 18, the company announced a quarterly dividend of $0.40 per share on its common stock, payable to its shareholders on September 15, 2023. BC’s annual dividend of $1.60 translates to a 1.97% yield on the prevailing prices, while its four-year average dividend yield is 1.59%.
Its dividend payouts have grown at CAGRs of 17.7% and 15.5% over the past three and five years, respectively. Also, it has a record of 10 years of consecutive dividend growth.
BC’s net sales for the second quarter (ended July 1, 2023) amounted to $1.70 billion, while its adjusted operating earnings came in at $234.90 million. The company’s net earnings amounted to $134.70 million and $1.90 per share, respectively, in the same period.
In addition, as of June 30, 2023, its net cash inflow from operating activities increased 71.6% from the prior-year period to $252.10 million. Also, its free cash inflow stood at $254.40 million, up 70.3% year-over-year.
Analysts expect BC’s EPS for the fourth quarter (ending December 31, 2023) to increase 8.2% year-over-year to $2.15. Its revenue for the next quarter is expected to increase marginally from the previous year’s period to $1.59 billion. Moreover, the company topped the EPS estimates in each of the trailing four quarters.
Over the past three years, its revenue and EBITDA have grown at CAGRs of 20.5% and 27%, respectively. Likewise, its total assets increased at an 18.9% CAGR in the same period.
BC’s trailing-12-month net margin of 8.21% is 91.3% higher than the 4.29% industry average. Its trailing-12-month EBIT margin of 13.54% is 84.8% higher than the industry average of 7.33%. In addition, the stock’s trailing-12-month ROCE and ROTC of 27.09% and 12.23% compare to the industry averages of 10.84% and 6.01%, respectively.
The stock has gained 14% year-to-date to close the last trading session at $82.14.
BC’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has a B grade for Quality. In the 36-stock Athletics & Recreation industry, it is ranked #7. Click here to see BC’s ratings for Growth, Value, Momentum, Stability, and Sentiment.
Stock #2: Skechers U.S.A., Inc. (SKX)
SKX designs, develops, and markets a diverse range of lifestyle and performance footwear, apparel, and accessories for men, women, and children. The company operates through two segments, Wholesale and Direct-to-Consumer. It offers products under the Skechers USA, Skechers Sport, Skechers Active, Modern Comfort, etc.
On August 15, the company announced a collaboration with artist Jen Stark. Featuring both colorful and black and white plays of her hypnotic drip designs on several women’s silhouettes, the new Skechers x Jen Stark capsule kicks off the brand’s Visual Artist Series, which would spotlight various artists’ distinct designs on Skechers products in a run of launches through 2024.
While transforming SKX’s product portfolio, the new collection is expected to attract robust consumer demand.
On April 27, SKX announced the acquisition of its Scandinavian distributor, Sports Connection Holding ApS, which encompasses 58 existing Skechers retail locations, several e-commerce solutions, and over 1,600 wholesale customers. The acquisition is expected to expand SKX’s presence in Europe by leveraging the Sports Connection team’s local expertise and benefit from the company’s global capabilities.
For the fiscal second quarter (ended June 30, 2023), SKX’s sales increased 7.7% year-over-year to $2.01 billion, while its gross profit rose 18.2% from the year-ago value to $1.06 billion. Net earnings attributable to SKX increased 69% from the prior-year quarter to $152.76 million and $0.98 per share. Also, its earnings from operations stood at $217.73 million, up 41.2% year-over-year.
The consensus EPS estimate of $0.79 for the third quarter (ending September 2023) represents a 42.9% improvement year-over-year. The consensus revenue estimate of $2.03 billion for the current quarter indicates a 7.8% increase from the prior-year period. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Its revenue increased at a CAGR of 18.5% over the past three years. Also, its EBITDA and EPS have improved at CAGRs of 32.4% and 48% over the same period, respectively.
The stock’s trailing-12-month gross profit and net income margins of 49.32% and 6.11% are 39.6% and 42.2% higher than the 35.32% and 4.29% industry averages, respectively. Likewise, its trailing-12-month ROTA of 6.68% is 73.8% higher than the industry average of 3.84%.
SKX’s shares have gained 23.3% over the past nine months and 28.7% over the past year to close the last trading session at $49.77.
It’s no surprise that SKX has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Growth, Value, and Sentiment. Out of 36 stocks in the same industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have SKX’s ratings for Momentum, Stability, and Quality. Get all SKX ratings here.
Stock #1: MasterCraft Boat Holdings, Inc. (MCFT)
MCFT designs, manufactures, and markets recreational powerboats. It operates through four segments: MasterCraft; Crest; NauticStar; and Aviara.
On July 24, the company’s Board of Directors announced a new $50 million share repurchase authorization of its outstanding shares of common stock, effective upon the expiration of its existing $50 million repurchase program. This reflects the company’s strong cash flows and ability to boost shareholders’ returns.
In the same month, MCFT announced its 2024 lineup of boats, featuring several exciting enhancements. The NXT models now have an easy-to-use touchscreen and three different Rapid Surf waves to suit various skill levels. The XStar S, XT, and X models also have standard underwater exhaust, reducing noise and enhancing air quality.
During the fiscal year 2023 (ended June 30), MCFT’s net sales increased 3.2% year-over-year to $662.05 million. Its operating income grew marginally from the previous year to $116.92 million.
The company’s adjusted net income amounted to $95.02 million and $5.35 per share, representing increases of 1.8% and 6.8% year-over-year, respectively. In addition, its adjusted EBITDA increased marginally from the year-ago value to $131.45 million.
Analysts expect MCFT’s EPS and revenue for the current quarter ending September 30, 2023, to be $0.95 and $133.58 million, respectively. Its EPS is expected to increase by 10% per annum over the next five years. Additionally, it surpassed the consensus EPS estimates in each of the trailing four quarters.
Also, its revenue grew at CAGRs of 20.4% and 20.7% over the past three and five years, respectively. Likewise, its EBITDA increased at a CAGR of 28.8% over the past three years.
MCFT’s trailing-12-month EBIT margin of 15.52% is 111.8% higher than the 7.33% industry average. In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 45.68%, 34.13%, and 17.07% compare to the industry averages of 10.84%, 6.01%, and 3.84%, respectively.
The stock has gained marginally over the past year to close the last trading session at $24.96.
MCFT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Quality. Within the same industry, it is ranked #3. To see MCFT’s Momentum, Stability, and Sentiment ratings, click here.
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SKX shares were trading at $49.96 per share on Wednesday afternoon, up $0.19 (+0.38%). Year-to-date, SKX has gained 19.09%, versus a 18.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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