2 Top Vacation Stocks to Watch in August

There hasn’t been much good news for vacation stocks. While many travel and entertainment companies were able to open their doors for the summer season, it remains to be seen how well business is going to bounce back amid the continued spread of COVID-19…

Disney (NYSE:DIS) and SeaWorld Entertainment (NYSE:SEAS) both operate theme parks that were closed for more than two months during the pandemic but have since reopened. Both companies released earnings this month detailing how they’ve been faring as parks reopen, and investors are waiting cautiously to see how much improvement they can expect going forward.

Bringing magic back to the kingdom

The king of entertainment has had a rough few months. One of its main revenue drivers, the parks and experiences business, came to a screeching halt as vacation-goers stayed home. However, Disney operates a diverse assortment of services that helped cushion the blow from this segment.

Fiscal third-quarter earnings came out on Aug. 4, and the company suffered quite a bit as compared to the second quarter, which included just the first two weeks of U.S. lockdowns. At that time, the park closures were not as big of a headwind as total revenue increased 21% year over year. However, revenue in the parks, experiences, and products segment declined 10% in a sign of things to come.

In the latest period, total revenue plummeted 42%, while the parks segment decreased 85%. The quarter ended June 27, and Disney World in Orlando had only just begun to welcome guests, while other Disney experiences had more time to build momentum, including its Asia theme parks and Disney Springs food and shopping venue in Florida, which reopened in May. Ultimately, the closures in that business resulted in a $3.5 billion hit to operating income for the company.

Disney ended the quarter with $23.1 billion in cash and equivalents, so liquidity is not an issue. But so far, the theme park recovery is slow. Disney World is operating at “positive net contribution,” according to CFO Christine McCarthy, but the uncertainty surrounding COVID-19 in Florida has meant that attendance at Disney World is less than what management expected. That said, bookings indicate that guests are ready to come back as consumer confidence increases (and new COVID-19 cases decline).

Florida is in the thick of the uncertainty with a new record for deaths from COVID-19 in a single day reported recently. Meanwhile, Disneyland in California is still closed, although a dining and entertainment portion has partially reopened. The late summer months will be important for investors to track — updates regarding coronavirus cases or progress in developing a vaccine will affect park attendance and the company’s top line in its fiscal fourth quarter.

Vacation by the sea

SeaWorld’s theme parks are in a similar situation, but unlike Disney, the company doesn’t have a broad range of services or products that it can lean on in the meantime. That means when parks were closed, revenue was completely on hold as well.

SeaWorld reported second-quarter earnings on Aug. 10, and not surprisingly, there was a 96% decrease in revenue year over year. Although all of its parks were closed for several months beginning March 16, a phased reopening began June 6, and as of the report date, nine of its 12 parks are currently open. Attendance during the quarter…

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